From  the 
Jjhrary  of 


"Ray  V.  J:effler 


uiNivtHbi  I  Y  u^  CALIFORNIA    SAN  DIEGO 


3  1822  00754  7243 


Central  University  Library 

University  of  California,  San  Diego 
Note:  This  item  is  subject  to  recall  after  two  weeks. 

^  Date  Due 

APR  ^"  iJ"^ 

JUL^ 

• 

CI  39  (1/91)                                                                     UCSDLib. 

^05/ 
U5 

Ml  3 


1 


''Co-operation,  not  strife, 
Is  the  divine  law  of  life. 


THE  PLAN 

Of  the  bill  is  epitomized  as   follows: 

1.  FEDERAL  RURAL  CREDITS  BOARD 

a  bureau  in  the  Treasury  Department,  con- 
sists of  Secretary  of  the  Treasury  and  four 
appointees.     These  men  also  constitute 

2.  FEDERAL  RURAL  CREDITS  COMPANY 

It  takes  over  War  Finance  Corporation, 
$500,000,000  capital,  to  be  reduced  to  $250,- 
000,000.  This  Company  subscribes  the 
initial  capital  for 

3.  ONE  FEDERAL  DEBENTURE  BANK  IN 
EACH  STATE 

at  the  rate  of  $1,000  for  each  $1,000,000  of 
value  of  farm  property.  The  state  invests 
a  like  sum  in  the  debentures  this  bank 
issues  secured  by  agricultural,  live  stock, 
commodity  and  real  estate  paper,  which  it 

4.  DISCOUNTS  FOR  NATIONAL  OR  STATE 
BANKS,       CO-OPERATIVE       AGRICUL- 
TURAL ASSOCIATIONS,  FEDERAL  CO- 
OPERATIVE BANKS  OR  CATTLE  LOAN 
COMPANIES 

that  become  its  members.  Such  paper  and 
the  debentures  secured  thereby,  may  run 
for  six;  months  to  three  years,  or  five  years 
if  secured  on  real  estate. 

5.  ALL  DEBENTURES  ARE  GUARANTEED 

principal  and  interest  by  Federal  Rural 
Credits  Company,  but  each  debenture  bank 
is  free  of  any  joint  and  several  liability. 

6.  FEDERAL  RESERVE  SYSTEM'S 

powers  for  rediscounting  farm  paper  are 


somewhat  broadened  under  safe  restric- 
tions. Export  credits  are  provided  for 
emergencies.  Veterans  receive  prefer- 
ence. 

7.  THUS  THE  NEW  RURAL  CREDITS  PLAN 

transforms  the  temporary  War  Finance 
Corporation  into  a  permanent  institution, 
with  a  branch  in  each  state,  through  which 
all  existing  banks  and  co-operative  associa- 
tions, with  others  that  may  be  organized, 
will  safely  mobilize  part  of  their  assets, 
credits  and  machinery  for  the  service  of 
agricultural  production  and  orderly  mar- 
keting, to  the  mutual  welfare  of  all  con- 
cerned and  for  the  benefit  equally  of  food 
producers  and  food  consumers. 

8.  WITHOUT     INTERFERING     WITH     OR 
MIXING  INTO 

the  Federal  Reserve  for  current  credits  or 
the  Federal  Farm  Loan  System  for  long 
term  mortgages,  this  plan  for  rural  credits 
is  sound,  simple,  inexpensive,  adequate,  in 
harmony  with  American  customs,  and  in 
the  interest  of  all  the  people  all  the  time. 
It  does  not  require  any  new  appropriation 
by  Congress,  and  provides  that  the  deben- 
ture bank  in  each  state  may  repay  its  fed- 
eral advance  and  come  into  the  sole  owner- 
ship of  its  own  members. 

9.  LARGE  REVENUES  TO  THE  UNITED 
STATES 

from  the  new  rural  credits  system,  as 
profits  above  6  or  8%,  go  to  the  govern- 
ment as  franchise  tax. 


RURAL  CREDITS  SYSTEM 

For   the   United   States 


Prepared  at  the  request  of  the  Rural  Credits  Committee 
of  the  Farm  Bloc  of  the  United  States  Senate 


By  HERBERT  MYRICK 


Author  of  The  Federal  Farm  Loan  Syitem,  1916;  Co-operative  Finance,  1912; 

The  author'*  Standard  Bill  for  Farm  Finance  under  State  Law,  1908,  or  «ome  of  its  features 

have  been  embodied  in  the  statutes  of  22  states 

How  to  Co-operate,  1 89 1 

Books  on  practical  farming,  stories  from  real  life,  poems,  philosophy,  addresses 

Director  Federal  Land  Bank  of  Springfield 
'  Also  president  Dakota  Farmer  of   Aberdeen,  S.  D.,  Northwest  Farmstead  of 
Minneapolis,  Current   Events  of  Columbus;  president  and  editor- 
in-chief  Farm  and  Home  of  Chicago  and  Springfield, 
editor-in-chief  New  England  Homestead 


INCLUDING  FULL  TEXT  FOR  PROPOSED  FEDERAL 
RURAL  CREDITS  ACT 


CHICAGO  &  SPRINGFIELD,  MASS. 

PHELPS  PUBLISHING  COMPANY 
1922 


Copyright   1922 
By   Herbert   Myrick 
All  Rights  Reserved 


"Aw.  g»t  off'n  hit  [tail,.  Uncle  Sanf! 


The  Big  Three 


The  text  quotes  fully  from  the  author's  previous  books. 
What  his  "Co-operative  Finance"  said  in  1912  is  even 
more  true  today: 

"The  lack  in  farm  finance  reveals  underlying  economic- 
conditions  that  drive  people  from  country  to  cities.  Those 
economists  and  statesmen  who  have  sought  financial  prin- 
ciples rather  than  panaceas,  are  beginning  to  realize  the 
truth  compressed  into  the  axiom  known  as  "Myrick's  law": 

"Other  factors  being  equal,  agriculture  will 
nrogress    in    the    ratio    that    farmers    employ 

Cash,  Credits  and  Co-operation 


Table  of  Contents 

Frontispiece    

The  Plan 3,  4 

Title  Page  5 

Costs,  Credits,  Cooperation 7 

The  Mandate 9 

The  Vision  10-14 

Chapter  1— The  Problem 15-20 

2— Principles  of  Rural  Credits . .  21-35 
3— Why  Federal  Rural  Credits 

Board  36-43 
4 — Federal  Rural  Credits  Com- 
pany     44-63 

5 — Federal  Debenture  Banks  . . .  64-85 
6 — Cooperative  Association   ....    86-98 

7 — Miscellaneous  Features 99-116 

8 — Federal  Cooperative  Banks  117-128 
9 — Amendments      to      Federal 

Reserve 129-144 

10 — Appendix — A  bill  for    rural 

credits  in  full   144-231 

11— Index    232-239 


THE  MANDATE 

Aberdeen,  Minneapolis,   Chicago,   New  York, 

Springfield,  16  June  1922 

To  the  Committee  on  Rural  Credits  of  the  Farm  Bloc  of 
the  United  States  Senate — Hon.  Arthur  Capper  (R)  of 
Kansas  chairman,  Hon.  Charles  L.  McNary  (R)  of  Ore- 
gon, Hon.  Edwin  F.  Ladd  (R)  of  North  Dakota,  Hon. 
Wesley  L.  Jones  (R)  of  Washington,  Hon.  Claude  A. 
Swanson  (D)  of  Virginia,  Hon.  John  B.  Kendrick  (D) 
of  Wyoming,  Hon.  Pat  Harrison  (D)   of  Mississippi. 

Gentlemen: — At  the  conference  in  the  Senate 
District  of  Columbia  Committee  Room  at  the 
Capitol  from  4  to  6  P.  M.  June  7,  1922,  after  dis- 
cussing with  the  writer  the  various  rural  credits 
bills  which  had  been  introduced,  together  with 
many  other  phases  of  the  problem,  you  agreed  in 
requesting  me  to  draft  a  new  bill.  You  said,  in 
effect : 

"Let  this  measure  provide  for  a  com- 
prehensive system  of  rural  credits,  safe 
and  sound,  practical  and  elastic,  dealing 
adequately  with  all  regions  under  their 
varying  conditions.  Embody  in  the  new 
draft  any  and  all  points  in  the  existing 
bills  which  you  consider  essential.  Add 
thereto  or  work  in  therewith  such  new 
features  as  your  knowledge  and  expe- 
rience may  justify.  The  result  will  be 
helpful  to  the  committee  and  the  Con- 
gress in  its  efforts  to  create  promptly 
an  adequate  rural  credit  system." 
Pursuant  to  this  mandate  the  bill  follows, 
preceded  by  a  report  or  discussion  of  its  prin- 
ciples, method  and  detail. 

Respectfully, 

THE  AUTHOR 


THE  VISION 

THE  only  permanent  thing  is  change !  Every- 
where and  always,  progression  or  retro- 
gression; nothing  is  fixed.  Ever  the  con- 
tention of  positive  and  negative  forces — evolu- 
tion. 

"Advance  results  from  struggle.  Triumph 
over  obstacles  is  the  only  worth-while  victor>^ 
Honest  endeavor  is  the  vital  principle,  rather  than 
achievement,  however  glorious. 

"All  Nature,  all  human  history,  attest  these 
truths.  Civilization  is  the  human  object  lesson 
in  evolution.  Economic  justice  is  the  basis  for 
social  justice,  and  the  degree  to  which  both  pre- 
vail measures  the  progress  of  civilization. 

"God's  ways  are  beyond  man's  comprehen- 
sion. Man's  effort  often  is  so  befogged  by  the 
smoke  of  battle  as  to  obstruct  the  vision  of  his 
progress.  We  see  the  dust,  the  cloud,  we  do  not 
get  the  clear  bird's-eye  view  of  the  whole  situation. 
But  go  to  the  top  of  an  exceeding  high  mountain 
on  a  cloudless  day  and  how  distinct  appears  all 
that  previously  was  obscure! 

"So  now  we  discern,  amid  the  warfare  of 
aggressive  Individualism,  ruthless  Capitalism  and 
extreme    Socialism,    the    strong    figure    of    CO- 

10 


OPERATION  advancing  to  the  front.  His  majestic 
mien,  his  masterful  bearing,  his  confidence-impart- 
ing atmosphere,  withal  his  modesty  and  sympathy 
and  humanity,  inspire  in  every  man  and  woman 
the  conviction  that  Co-operation  is  the  great  leader 
who  will  conduct  them  to  the  promised  land.  But 
the  people  quickly  learn  from  this  leader  that  they 
can  never  reach  the  goal  except  through  their 
own  individual  efforts,  supplemented  by  associated 
effort  in  doing  those  things  which  can  be  done 
better  by  people  working  together  rather  than 
separately. 

"Just  as  you  dimly  feel  the  latent  powers  in- 
herent within  yourself  that  are  seeking  expres- 
sion, so  are  there  powers  inherent  but  latent  in 
the  mass  which  are  seeking  an  outlet.  Just  as 
these  powers  in  the  individual  grow  by  use,  edu- 
cation and  experience,  until  he  may  accomplish 
the  seemingly  impossible,  so  do  the  powers  of 
co-operation  develop  by  use,  training  and  wisdom. 

"When  you  know  how,  it  is  so  easy  to  do  any- 
thing, whether  individually  or  collectively!  The 
inefficient  methods  of  the  past  give  way  to  the 
efficient  processes  of  the  future.  Past  theories 
become  obsolete  in  the  light  of  modern  experience. 
Old  issues  naturally  wither  and  die  in  the  bright 

11 


sunshine  of  the  new  era.    What  before  was  com- 
plicated, now  becomes  simple." 


The  foregoing  introduction,  quoted  from  the 
author's  book.  Co-operative  Finance,  written  and 
published  in  1912,  possesses  a  new  significance 
today.  The  Pujo  investigation,  defeat  of  the  Al- 
drich  bill,  creation  of  the  Federal  Reserve  and  of 
the  Federal  Farm  Loan  System,  have  been  fol- 
lowed by  a  chain  of  events  that  have  fully  demon- 
strated the  wisdom  of  the  policies  dealt  with  in 
those  two  great  Acts. 

Experience  has  revealed  the  strong  and  weak 
features  of  both  Acts.  In  spite  of  their  weak- 
nesses, the  Reserve  law  and  the  Farm  Loan  system 
for  first  mortgages  have  proven  of  incalculable 
value  during  the  war  period  that  tested  to  the 
uttermost  all  human  institutions. 

Now  that  the  United  States  has  become  the 
world's  leading  creditor,  instead  of  the  debtor 
nation  America  was  prior  to  1914,  many  entirely 
new  conditions  present  themselves.  To  cope  with 
present  and  future  developments,  it  is  imperative 
that  the  United  States  forthwith  complete  its 
financial  structure  by  adequate  provision  for 
rural  credits,  and  for    second    mortgages     on 

12 


farms  owned,  occupied  and  operated  by  experi- 
enced and  reliable  farmers,  also  for  financing 
the  real  estate  employed  by  co-operative  asso- 
ciations. 

In  this  and  all  other  economic  effort  toward 
prosperity — material,  social,  spiritual — for  all  the 
people  all  the  time,  the  dominant  note  is  human 
welfare.  Even  more  true  for  today  and  for  the 
future  are  my  words  of  ten  years  ago : 

"Equality  of  opportunity  for  each  individual, 
co-operation  among  the  weak  as  a  safeguard 
against  abuse  of  power  by  the  strong,  encourage- 
ment to  honest  endeavor  among  people  of  all  ages 
and  conditions,  inspiration  to  achievement — the 
new  finance  must  recognize  these  as  among  the 
essentials  of  the  new  era." 

But  hard  work,  struggle,  industry,  thrift,  effi- 
ciency, common  sense,  gumption,  grit,  "sand," 
persistence — ^these  eternal  economic-social  factors 
each  of  us  must  cultivate  even  more  in  the  future 
than  in  the  past. 

Yet  the  spiritual,  moral  and  ethical  attributes 
may  be  employed  to  more  directly  promote  ma- 
terial progress.  To  apply  the  ideals  of  service — 
to  our  fellows,  our  community,  our  state,  our  na- 
tion— will  add  to  both  the  success  and  joy  of  life. 

13 


To  integrity  of  purpose,  unite  willingness  to  enter- 
tain others'  views  or  opposing  reasons.  Accom- 
pany personal  power  with  human  poise,  sincerity 
with  love.  Let  us  do  the  best  we  can  each  day, 
and  the  future  will  take  care  of  itself,  for  as  my 
mother*  wrote  on  her  deathbed : 

"Honest  endeavor  is  ne'er  thrown  away, 
God  gathers  the  failures  day  by  day, 
And  weaves  them  into  His  perfect  plan. 
In  ways  that  are  not  for  us  to  scan." 

♦  Lucy  Caroline  Whittemore  Myrick,  1832-1879 


CO-OPERATION 


UNITED  TO   ASSIST,    NOT 
COMBINED     TO     INJURE^ 


14 


CHAPTER  ONE 
THE  PROBLEM 

TWO  of  the  three  grand  divisions  of 
finance  in  the  United  States  already 
are  well  provided  for — 

(1)  The  Federal  Reserve  system,  supple- 
menting our  commercial  banks  under  na- 
tional and  state  law,  goes  far  in  providing 
adequately  for  current  commercial  credits 
running  for  periods  of  thirty  to  ninety  days, 
and  for  six  months  agricultural  paper. 

(2)  The  Federal  Farm  Loan  system  aims 
to  accommodate  the  demand  for  permanent 
capital  for  farm  land  ownership,  by  financ- 
ing mortgages  on  farms  over  periods  of 
from  ten  years  to  33  years  at  reasonable 
rates  of  interest. 

The  Third  Division  of  finance  is  now  to 
be  provided  for.  By  this  is  meant  a  com- 
prehensive system  of  rural  credits  for  the 
purpose  of  financing  the  farmer's  need  for 
funds  during  periods  of  from  six  months  to 

15 


RURAL  CREDITS  SYSTEM 

three  years  on  the  security  of  such  personal 
property  and  character  as  he  may  be  able  to 
furnish. 

With  an  investment  of  78  billions  of  dol- 
lars in  his  business,  the  American  farmer 
has  produced  an  average  of  18  billions  in 
value  of  annual  product  of  late  years.  This 
enormous  turn-over  requires  an  enormous 
amount  of  capital  and  credit,  for  periods  of 
six  months  to  three  years,  but  no  adequate 
provision  exists  for  providing  these  rural 
credits  such  as  has  been  and  is  now  afford- 
ed to  other  industries  whose  turn-over  i^ 
much  quicker. 

Short  Term  Mortgages  also  are  needed  in 
rural  credits.  This  need  is  in  two  forms : 
(a)  The  experienced  farmer  who  is 
worthy  of  having  a  farmstead  of  his  own, 
too  often  is  forced  to  be  a  tenant  or  a  hired 
man,  because,  even  though  he  may  have  ac- 
quired some  stock  and  tools  or  a  little  cap- 
ital, he  has  not  funds  sufficient  to  pay  down 
in  cash  all  that  the  desired  farm  may  cost 
in  excess  of  what  he  can  borrow  thereon, 
through  the  federal  farm  loan  system  se- 
cured by  underlying  first  mortgage.    But  if 

16 


THE  PROBLEM 

he  can  borrow  25%  more  for  say  five  years, 
on  a  mortgage  second  to  the  federal  first, 
this  aid  may  be  just  enough  to  give  him  a 
start  toward  owning  his  own  farm, 
(b)  Likewise  a  first  mortgage  for  not  to 
exceed  five  years  upon  the  real  estate 
owned  and  used  by  a  co-operative  associa- 
tion in  its  business  of  supplying  its  farmer 
members  with  what  they  need  to  buy  and  of 
helping  them  in  disposing  of  what  they 
have  for  sale,  will  do  much  to  promote 
the— 

More  Orderly  Marketing  of  agricultural 
products  by  the  producers  thereof,  as  well 
as  the  more  orderly  marketing  to  farmers 
of  the  manufactured  commodities  they  re- 
quire. 

In  spite  of  the  fact  that  the  American 
farmer  has  shown  for  years  that  he  is 
**good"  and  almost  invariably  pays  his  bills 
100  cents  on  the  dollar  with  interest,  even 
though  forced  at  times  to  be  rather  slow, 
he  has  been  too  often  and  too  generally 
denied  facilities  for  the  cash,  credits  and 
co-operation  his  business  requires. 

Paying  the  highest  retail  prices  for  what 

17 


RURAL  CREDITS  SYSTEM 

he  buys,  usually  receiving  only  the  lowest 
wholesale  prices  for  what  he  sells,  less  all 
the  toll  extorted  by  middlemen  and  trans- 
portation, with  everything  he  possesses  in- 
escapable from  the  tax  assessor,  it  is  a  won- 
derful tribute  to  the  enterprise  of  the  Amer- 
ican farmer  and  to  the  stability  of  Ameri- 
can agriculture  that  both  have  attained  to 
their  present  development. 

The  Great  Deflation  of  1920-1922  em- 
phasizes the  gi'ave  deficiency  in  our  fiscal 
system  due  to  the  absence  of  an  adequate 
method  of  rural  credits.  To  be  sure,  cap- 
ital and  labor  in  other  industries  did  not  es- 
cape the  collapse  either  here  or  in  other 
parts  of  the  world,  but  agriculture  was  hit 
first  and  hardest  and  has  been  slowest  to  re- 
cover. 

The  Agricultural  Inquiry  conducted  so 
comprehensively  1921-22  by  the  able  joint 
committee  of  the  United  States  Senate  and 
House  presented  a  report  that  deals  thor- 
oughly with  the  need  for  rural  credits 
and  outlines  an  admirable  bill  for  this  pur- 
pose— Senate  3051  by  Mr.  Lenroot,  known 

18 


THE  PROBLEM 

in  the  House  as  the  Anderson  bill.  Too 
much  praise  cannot  be  given  to  that  com- 
mittee for  the  excellence  of  its  treatment  of 
a  matter  involving  so  many  complexities 
and  magnitudes. 

Several  other  excellent  bills  also  have 
been  introduced  into  the  Senate  aiming  at 
the  same  result  but  varying  in  detail.  These 
measures  include —  S  3639  by  Mr.  Cap- 
per, S  3390  and  3578  by  Mr.  Simmons,  S 
3499  by  Mr.  Norbeck. 

By  the  Mandate  on  a  previous  page  the 
author  was  invited  to  use  these  various 
measures  as  a  basis  upon  which  to  frame  a 
bill  that  might  be  helpful  to  the  Congress  in 
its  efforts  promptly  to  create  an  adequate 
means  of  dealing  with  the  whole  situation. 

The  Rural  Credits  Bill  Herewith  sub- 
mitted aims  to  provide  a  method  that  shall 
meet  all  the  needs  which  have  been  so  fully 
revealed. 

In  form  and  phraseology,  while  em- 
bodying certain  essentials  in  the  meas- 
ures above  referred  to,  the  new  draft  fol- 
lows the  Federal  Farm  Loan  Act  in  some 

19 


RURAL  CREDITS  SYSTEM 

other  respects.  Especially  is  this  true  as  to 
certain  administrative  and  technical  details 
which  have  been  so  well  perfected  by  ex- 
perience under  that  Act  or  which  have  been 
sustained  by  state  and  federal  courts. 

The  specific  purposes  of  the  Rural  Cred- 
its bill,  which  is  printed  in  full  in  the  appen- 
dix of  this  book,  are  epitomized  in  its  title : 

"To  provide  cre'dit  facilities  for  the  or- 
derly marketing  of  agricultural  products, 
and  for  the  preservation  and  development 
of  agriculture  and  of  the  livestock  industry 
of  the  United  States ;  to  extend  and  stabilize 
the  market  for  United  States  bonds  and 
other  securities ;  to  provide  fiscal  agents  for 
the  United  States;  to  amend  the  Federal 
Reserve  Act;  to  provide  for  Federal  Co- 
operative Banks,  and  for  other  purposes. 


20 


CHAPTER  TWO 
PRINCIPLES  OF  RURAL  CREDITS 

WHILE  the  order,  note  or  other  obliga- 
tion of  an  experienced   farmer   of 
good  character  almost    invariably 
has  proven  to  be  "good,"  heretofore  it  has 
been  open  to  these  objections: 

1.  Nearly  a  year  is  required  for  the  pro- 
duction of  staple  crops,  still  longer  for  the 
production  of  live  stock,  whereas  the  man- 
ufacturer may  produce  his  commodities  in 
a  few  days  or  weeks,  while  the  merchant 
converts  them  into  cash  with  even  greater 
celerity. 

2.  Thus  the  farmer  secures  the  money 
with  which  to  pay  his  debts  only  once  a  year 
in  the  case  of  staple  crops,  though  more  fre- 
quently if  he  has  some  specialty  like  truck 
crops,  dairy  or  poultry,  but  at  best  his  turn- 
over is  slow  and  his  credits  long. 

3.  For  these  reasons  the  tendency  of 
commercial  banking  necessarily  has  been 
to    favor   manufacturer    and    middleman, 

21 


RURAL  CREDITS  SYSTEM 

merchant  and  speculator  with  their  quick 
turn-overs,  to  the  detriment  or  inconven- 
ience of  the  agriculturist  with  his  slower 
turn-over. 

4.  Nor  is  the  commercial  banker  to  be 
blamed  for  this,  because  from  80  to  90%  of 
his  funds  consists  of  deposits  with  him  of 
other  people's  money  who  are  likely  to 
draw  upon  it  at  any  minute,  so  that  the 
bank  must  always  have  sufficient  cash  on 
hand  or  assets  instantly  or  quickly  avail- 
able to  meet  the  demands  of  its  depositors. 

Objections  Overcome.  The  Rural  Cred- 
its bill  herewith  proposes  to  obviate  all  of 
the  foregoing  objections,  to  mobilize  the 
basis  of  short  term  credits  which  farmers 
possess,  and  so  to  mobilize  the  credit  instru- 
ments themselves  that  they  shall  be  free  not 
only  from  the  objections  cited,  but  from 
others  which  might  be  mentioned. 

The  purpose  is  to  accomplish  this  by  a 
method  which  shall  encourage  the  bor- 
rower to  get  out  of  debt,  prove  more  attrac- 
tive to  the  investor,  encourage  thrift,  foster 
the  profitable  investment  of  savings  in  farm 

22 


PRINCIPLES  OF  RURAL  CREDITS 

development,  and  thus  create  a  veritable 
endless  chain  of  prosperity. 

The  economic  methods  required  to  ac- 
complish these  purposes  of  rural  credits 
also  will  have  far  reaching  social  and  civic 
influence,  by  reason  of  the  co-operative 
principles  embodied  in  the  bill  submitted 
in  the  appendix. 

Co-operation  Required.  For  farmers  to 
unite  in  local  societies  for  the  better  financ- 
ing of  their  needs  as  well  as  for  orderly  sell- 
ing and  buying,  implies  more  of  mutual 
confidence  and  less  of  mutual  suspicion. 
Such  co-operation  means  united  effort 
among  individuals;  and  joint  service,  vol- 
untarily performed  and  necessarily  per- 
sisted in,  reacts  beneficially  upon  the  indi- 
vidual. It  tends  to  bring  out  those  social, 
ethical  and  spiritual  attributes  which  add 
so  much  to  the  joy,  the  glory  and  the  useful- 
ness of  life.  The  co-operative  spirit  may  be 
better  sensed  than  described — like  love,  it 
can  be  felt  rather  than  expressed ! 

The  fact  that  the  plan  of  the  proposed 
reconstruction   of  rural   credits  is  based 

23 


RURAL  CRE^DITS  SYSTEM 

largely  upon  the  coming  together  of  five  or 
more  individuals,  in  a  united  group,  is  one 
of  the  underlying  principles  that  has  made 
the  federal  farm  loan  act  so  successful  in 
its  operations.  This  principle  was  epito- 
mized years  ago  by  the  author  as  follows: 
"The  True  Way  Out  of  the  evils  that 
afflict  both  producers  and  consumers  is 
through  an  agency  which  already  exists.  It 
is  right  at  hand.  Its  ways  are  the  methods 
of  peace.  This  agency  requires  no  favored 
legislation,  no  political  revolution,  no  social 
overthrow.  It  builds  up  instead  of  tearing 
down.  Yet  its  success  has  been  abundantly 
demonstrated  under  the  most  adverse  cir- 
cumstances. It  is  as  permanent  as  a  human 
institution  may  be.  It  supplies  its  own  cap- 
ital, insures  its  own  prosperity,  and  in- 
creases in  practical  beneficence  with  age. 
Thoroughly  Christian  in  nature  and  appli- 
cation, no  phase  of  belief  can  take  excep- 
tions to  it.  Nor  does  it  antagonize  the  re- 
forms in  politics  and  government  and  taxa- 
tion, in  land  or  finance  or  transportation, 
that  are  now  so  prominent  in  the  public 
mind. 

24 


PRINCIPLES  OF  RURAL  CREDITS 

^'In  one  sense  independent  of  all  these, 
in  another  view  it  is  indispensable  to  any 
reform  that  is  to  be  of  lasting  benefit  to  the 
whole  community.  Yet  it  is  intensely  prac- 
tical, perfectly  adapted  to  country,  town,  or 
city,  within  the  reach  of  all  grades  of  peo- 
ple, and  thoroughly  suited  to  the  varied 
needs  and  capacities  of  producers  and  con- 
sumers in  all  the  great  vocations  of  life. 
Moreover,  it  interferes  with  no  reasonable 
effort  to  ameliorate  the  conditions  of  so- 
ciety, but  extends  to  such  the  hand  of  fel- 
lowship. Above  all,  it  in  no  possible  way 
antagonizes  any  farmers'  secret  orders  or 
open  organizations,  and  in  no  manner  inter- 
feres with  trade  unions  or  labor  associa- 
tions. Yet  it  is  an  agency  through  which  all 
such  orders,  organizations,  unions  and  as- 
sociations may  immensely  stimulate  and 
perpetuate  their  usefulness. 

"The  true  way  out  is  summed  up  in  the 
one  word — Co-operation." 

The  Advantages  of  Co-operation  as  ex- 
pressed in  my  earlier  book,  apply  with  pe- 
culiar force  to  the  mobilization  of  rural 
credits : 

25 


RURAL  CREDITS  SYSTEM 

1.  The  greatest  advantage  of  co-operation  is 
that  it  enables  "the  common  people" — as  Abraham 
Lincoln  used  the  term — to  help  themselves. 

2.  It  promotes  thrift,  sobriety,  morality,  neigh- 
borliness,  kindness,  courtesy,  intelligence,  self- 
thinking  and  good  citizenship. 

3.  It  can  adapt  itself  to  secure  its  advantages  to 
"all  sorts  and  conditions  of  men,  including  men 
of  various  nationalities." 

4.  It  interferes  with  no  private  rights  or  indi- 
vidual opinions. 

5.  It  substitutes  the  beneficence  of  co-operation 
for  the  warfare  of  competition. 

6.  It  pays  labor  fairly,  adds  to  savings  and 
yields  a  reasonable  hire  to  capital. 

7.  It  enables  the  people  to  govern  and  divide 
their  earnings,  instead  of  having  capital  rule  in- 
dustry and  absorb  the  profits  thereof. 

8.  It  converts  the  love  of  money  and  the  power 
of  the  "almighty  dollar"  into  the  greatest  of 
human  agencies  for  the  amelioration  of  society. 

9.  It  "begins  in  mutual  help,  with  a  view  to  end 
in  a  common  competence." 

10.  It  avoids  the  fallacy  of  "equal  division  of 
unequal  earnings,"  but  rewards  according  to  merit. 

11.  It  means  "concert  for  the  diffusion  of 
wealth." 

12.  It  is  not  philanthropy,  neither  is  it  mendi- 
cant, servile  or  offensive,  yet  possesses  the  spirit 
of  charity  without  sacrifice  of  practical  utility. 

26 


PRINCIPLES  OF  RURAL  CREDITS 

13.  "It  touches  no  man's  fortunes;  it  seeks  no 
plunder;  it  causes  no  disturbance  in  society;  it 
gives  no  trouble  to  statesmen;  it  need  enter  no 
secret  associations,  it  needs  no  trades-unions  to 
protect  its  interests ;  it  contemplates  no  violence ; 
it  subverts  no  order;  it  envies  no  dignity;  it  ex-- 
pects  no  gift  nor  asks  any  favor ;  it  keeps  no  terms 
with  the  idle  and  it  will  break  no  faith  with  the 
industrious." 

14.  It  uses  circumstances  to  advance  its  prin- 
ciples, instead  of  wasting  energy  to  advance  its 
principles  against  circumstances. 

15.  It  insures  against  mistakes  by  educating  co- 
operators  to  a  clear  idea  of  what  they  are  doing, 
uniting  such  thought  with  action. 

16.  It  gives  men  and  women  a  knowledge  of  busi- 
ness they  could  not  otherwise  obtain. 

17.  It  enables  people  to  get  out  of  debt  and  to 
keep  out  of  debt,  and  correspondingly  alleviates 
other  forms  of  distress. 

18.  It  creates  a  field  for  individual  energy  and 
security  for  its  reward,  while  avoiding  the  war- 
fare of  competition. 

19.  It  is  really  the  only  way  in  which  the  masses 
can  advance. 

20.  It  promotes  sound  sense,  good  temper  and 
good  will. 

21.  It  reduces  expenses,  bringing  producer  and 
consumer  together,  giving  the  former  a  fair 
profit,  while  furnishing  the  latter  at  a  reasonable 

27 


RURAL  CREDITS  SYSTEM 

price  articles  which  are  honest  in  quantity  and 
quality. 

22.  It  is  equity  in  business,  and  it  makes  equity 
pay. 

23.  It  is  a  definite,  practical  thing,  all  of  whose 
principles  can  be  brought  into  view  and  under- 
stood at  once. 

24.  It  recognizes  capital  as  an  expense,  whose 
hire  is  to  be  paid,  but  after  this  (like  other  ex- 
penses) is  met  "labor  by  brain  or  hand  is  the  sole 
claimant  of  profits." 

25.  It  delivers  the  public  from  the  middlemen, 
capitalists  and  monopolists  who  would  make  the 
laborer  work  for  the  least  and  the  consumer  pay 
the  utmost. 

26.  It  makes  saving  attractive,  easy  and  inevi- 
table, without  self-denial  or  effort  on  the  part  of 
the  individual.  And  finally  to  quote  more  fully 
and  literally  its  distinguished  apostle  (Holyoake), 
"Co-operation  was  born  of  the  feeling  that  at  best 
unmitigated  competition  was  but  organized  war, 
and  though  war  had  its  great  conquests,  its  bards, 
its  proud  associations  and  heroic  memories,  there 
was  murder  in  its  march;  and  humanity  and 
genius  were  things  to  blush  for,  if  progress  could 
not  be  accomplished  by  some  nobler  means ;  what 
an  enduring  truce  is  to  war,  co-operation  is  to  the 
never-ceasing  conflict  between  Labor  and  Capital 
— it  is  the  Peace  of  Industry." 

28 


PRINCIPLES  OF  RURAL  CREDITS 

Good  Management  Vital.  While  asso- 
ciated effort  through  the  co-operative  prin- 
ciple must  be  one  Basis  of  rural  credits,  the 
bill  proposed  aims  at  utmost  efficiency  in 
management.  It  is  intensely  practical.  It 
is  based  on  sound  business  principles.  It 
makes  it  possible  for  people  to  do  collec- 
tively those  things  which  they  can  do  better 
than  individually.  At  the  same  time,  it  of- 
fers every  stimulus  to  individual  initiative, 
self  interest,  personal  responsibility  and 
moral  accountability. 

Rural  Credits  are  Not  to  be  offered  to 
those  who  know  nothing  about  agriculture. 

"The  new  system  does  not  seek  to  place 
on  the  land  those  whose  ignorance  of  farm- 
ing is  surpassed  only  by  their  lack  of  cap- 
ital. If  such  people  really  have  a  hanker- 
ing for  the  farm  let  them  hire  out  for  a  sea- 
son or  a  year  to  some  good  farmer  where 
they  may  acquire,  at  the  employing  farm- 
ers expense,  the  experience  they  must  have 
before  they  can  expect  to  succeed  on  a  farm 
of  their  own. 

"At  the  same  time  the  employee's  wife, 

29 


RURAL  CREDITS  SYSTEM 

by  her  work  in  the  farmer's  hoiisehold,  will 
learn  what  she  needs  to  know  to  be  a  help- 
meet instead  of  merely  a  help-eat  when  she 
and  her  husband  acquire  a  homestead  of 
their  own." 

Borrowers    Must    Have    Some    Capital. 

Neither  does  the  bill  propose  to  set  up  in 
business  even  the  practical  farmer  and  his 
family  who  may  have  had  some  experience 
in  agriculture  but  who  possess  no  capital 
whatever.  Such  people  should  acquire 
some  means  by  saving  their  wages  earned 
by  working  for  others,  or  by  farming  on 
shares  or  other  form  of  tenantry. 

Starting  with  only  their  hands  and  head, 
but  by  practicing  such  thrift,  probably  more 
than  two  million  farmers  now  living  in  the 
United  States  have  acquired  farmsteads  of 
their  own,  and  a  majority  of  them  today  are 
out  of  debt. 

But  the  Real  Farmer  who  has  borrowed 
half  the  fair  value  of  his  farm  upon  long 
time  and  at  very  easy  rates  on  a  first  mort- 
gage from  the  Federal  Land  Bank,  may 
with  safety  be  further  assisted  by  a  second 

30 


PRINCIPLES  OF  RURAL  CREDITS 

mortgage  through  the  Rural  Credits  Sys- 
tem, for  a  period  of  say  five  years  and  for 
an  amount  not  exceeding  25  percent  of  the 
farm's  value.  He  can  either  pay  the  re- 
mainder of  the  purchase  price  out  of  his 
own  savings,  or  preferably  by  giving  ac- 
commodation notes  to  the  seller,  thus  re- 
serving the  balance  of  his  own  cash  for 
working  capital  with  which  to  equip  and 
operate  the  farm. 

The  Co-operative  Association  of  which 
this  man  and  all  other  farmers  in  a  given 
vicinity  may  be  members  also  is  to  specially 
benefit  from  the  new  Rural  Credits  System. 
Its  purpose  may  be  to  assemble,  grade, 
pack,  distribute  and  market  its  members' 
products  in  an  orderly  manner.  Or  it  may 
act  as  their  collective  agent  in  securing  for 
and  distributing  to  the  members  such  mer- 
chandise, equipment,  machinery,  feed,  fer- 
tilizer or  other  supplies  as  the  members 
may  require. 

Orderly  Marketing  to  farmers  is  equally 
as  important  as  orderly  marketing  by  farm- 
ers. 

31 


RURAL  CREDITS  SYSTEM 

By  Joining  the  Debenture  Bank  for  its 

state,  any  incorporated  agricultural  co-op- 
erative association  becomes  entitled  to  re- 
discount through  that  bank  the  agricultural 
loans,  live  stock  paper,  commodity  paper  or 
real  estate  paper  (as  deiined  by  the  Act)  of 
any  member  of  the  association.  The  bank 
obtains  the  money  for  this  purpose  by  sell- 
ing its  debentui'es  secured  by  such  collat- 
eral or  by  borrowing  from  the  central  insti- 
tution at  Washington  known  as  Federal 
Rural  Credits  Company. 

Mutual  Benefits.  Not  only  may  the 
farmer  obtain  capital  through  his  *'co-op" 
right  in  his  own  locality,  but  membership 
therein  brings  him  in  closer  touch  with  his 
neighbors  and  with  all  the  other  members. 
As  each  shareholder  in  this  little  local  in- 
corporated association  is  liable  for  double 
the  amount  of  his  investment  at  par  in  the 
shares  thereof,  one  and  all  the  members  are 
interested  in  the  success  of  each.  This  is 
all  the  more  true  because  each  member  has 
only  one  vote  regardless  of  the  number  of 
shares  or  amount  of  stock  in  the  local  held 
by  him. 


PRINCIPLES  OF  RURAL  CREDITS 

This  very  desirable  co-operation  is  ac- 
complished safely,  for  each  member  avoids 
anything  in  the  nature  of  joint  or  several 
obligation,  his  personal  liability  being 
strictly  limited  and  fixed. 

Obviously  the  Locals  have  frequent  meet- 
ings of  their  members  to  interchange  views 
and  experiences.  This  brings  farmers  into 
as  close  touch  with  the  problems  of  buying 
their  supplies  and  marketing  their  products 
as  with  the  problems  of  practical  farming 
that  occur  on  their  respective  farms,  and  all 
under  similar  conditions.  The  local  also  is 
a  center  for  disseminating  to  its  members 
information  from  other  sources  whenever 
it  may  be  beneficial. 

The  Solid  Base  of  this  plan  for  rural 
credits  is  founded  primarily  upon  helping 
the  individual  farmer  to  help  himself  by 
means  that  are  sound,  economically  and  so- 
cially, grounded  in  self-interest  and  fos- 
tered by  co-operation. 

All  Other  Business  Benefits  by  the  result- 
ing increase  in  agricultural  prosperity. 
Manufacturer  and  jobber,  dealer  and  mer- 

33 


RURAL  CREDITS  SYSTEM 

chant,  bank  or  trust  company,  town  and 
country,  share  liberally  in  the  farmers' 
progress. 

All  these  other  interests,  and  the  general 
public  therefore  should  welcome  the  new 
system  which  means  so  much  to  the  public. 

The  Penalty  Section  of  this  bill  provides 
large  fines  or  imprisonment  or  both  for 
almost  any  or  all  offences  that  may  be  com- 
mitted against  the  proposed  law.  It  is  pro- 
vided that  the  secret  service  may  be  em- 
ployed to  detect,  arrest  and  deliver  into  cus- 
tody any  person  violating  the  statute. 

Should  Congress  enact  the  bill  as  out- 
lined, any  attempt  to  impose  upon  the  sys- 
tem, or  to  secure  loans  unfairly  or  to  issue 
debentures  without  adequate  security  will 
be  visited  with  condign  punishment.  The 
proposed  law  guards  against  all  forms  of 
abuse,  under  penalties  for  violation  such 
as  to  deter  evil  doers. 

So  Attractive  to  Investors,  banks  and 
other  institutions  will  be  the  credit  instru- 
ments arising  out  of  the  new  system,  that 

34 


PRINCIPLES  OF  RURAL  CREDITS 

such  paper  will  be  marketable  in  the  high- 
est degree. 

Indeed  debentiires  in  small  denomina- 
tions will  be  bought  freely  by  people  whose 
little  funds  now  ''slip  through  their  fing- 
ers'\  The  large  denominations  will  be  pop- 
ular among  the  well-to-do  for  short  term  in- 
vestment— six  months  to  three  or  five  years 
— of  the  funds  of  wealthy  individuals, 
banks,  other  corporations  and  insurance 
companies. 

What  social  and  civic  benefits  may  not  be 
furthered  when  all  people  thus  actually 
own  an  interest,  by  virtue  of  their  invest- 
ment in  Federal  debentures,  in  the  simpli- 
fied production,  economic  distribution  and 
orderly  marketing  of  the  food  they  con- 
sume ! 


35 


CHAPTER  THREE 

WHY  FEDERAL  RURAL  CREDITS 
BOARD 

THE  magnitude  of  Rural  Credits  will 
increase  and  decrease,  when  proper 
facilities  of  the  kind  are  provided,  in 
much  the  same  way  that  current  credits  ex- 
pand and  contract  under  the  Federal  Re- 
serve System.  By  this  is  not  meant  infla- 
tion among  farmers,  or  any  undue  expan- 
sion of  borrowings,  but  rather  a  larger  use 
of  checks,  notes,  drafts,  acceptances  and 
other  credit  instruments. 

Farmers  being  provided  with  these 
means  of  exchange,  instead  of  having  to 
employ  cash  or  barter  to  the  extent  pre- 
viously in  vogue,  the  financial  operations  of 
agriculture  will  largely  increase  as  the 
better  facilities  for  the  interchange  of  cred- 
its and  for  orderly  marketing  become  avail- 
able. 

Consequently  the  rural  credits  business 
of  the  country  inevitably  will  become   so 

36 


WHY  FEDERAL  RURAL  CREDITS  BOARD 

vast  and  fluctuating — from  three  to  six  bil- 
lions a  year — in  volume  as  to  require  all  of 
the  time,  thought  and  abilities  of  a  federal 
supervising  authority. 

Its  Work  Will  Be  Different  from  that  of 
Federal  Reserve  Board,  which  has  to  do 
with  current  credits  and  with  the  credit  in- 
struments used  in  the  transactions  of  cur- 
rent commerce. 

Its  work  also  will  be  almost  entirely  dif- 
ferent from  the  duties  of  the  Federal  Farm 
Loan  Board,  which  has  oversight  of  the 
long  term  mortgage  business  under  the 
farm  loan  act. 

No  Interference  with  or  mixing  into  the 
Federal  Reserve  for  current  credits,  or  the 
Federal  Farm  Loan  System  for  long  term 
mortgages  can  be  tolerated  if  American 
finance  is  to  be  sound  under  every  and  all 
conditions. 

Nothing  must  be  injected  into  the  Fed- 
eral Reserve  that  may  impair  its  activities, 
its  efficiency  or  the  liquidity  of  its  funds. 

On  the  other  hand,  nothing  must  be  al- 
lowed to  impair  the  underlying  security  of 

37 


RURAL  CREDITS  SYSTEM 

the  Federal  Farm  Loan  System  or  of  its 
low-rate  long-term  bonds  secured  by  under- 
lying first  mortgages  on  farms. 

Public  confidence  in  both  of  those  sys- 
tems is  their  greatest  asset.  Nothing  should 
be  allowed  to  impair  that  confidence. 

The  Federal  Rural  Credits  Board  there- 
fore is  proposed  as  a  separate  and  distinct 
bureau  in  the  Treasury  Department  to  have 
general  control  over  and  supervision  of  the 
whole  system  of  rural  credits,  so  far  as  the 
same  may  be  under  national  law  or  so  far  as 
the  same  under  state  law  co-ordinates  with 
and  shares  in  the  benefits  of  the  national 
system. 

This  board  shall  consist  of  the  Secretary 
of  the  Treasury  and  four  appointees  by  the 
President,  by  and  with  the  advice  and  con- 
sent of  the  Senate.  Not  more  than  two  shall 
be  from  one  political  party,  each  shall  be  a 
resident  in  and  fairly  representative  of  a 
different  geographical  region,  and  each 
shall  be  experienced  in  agriculture  and 
finance.  One  shall  be  the  superintendent  of 
the  Rural  Credits  System  and  their  salaries 
shall  be  $12,000. 

38 


WHY  FEDERAL  RURAL  CREDITS  BOARD 

Not  Really  a  New  Bureau  is  contemplat- 
ed, however,  for  these  men  also  constitute 
Federal  Rural  Credits  Company  which 
takes  over  War  Finance  Corporation  as 
fully  described  in  our  next  chapter  and  in 
the  proposed  bill. 

This  plan  even  avoids  any  new  appropria- 
tion by  Congress,  but  utilizes  and  makes  far 
more  efficient  whatever  personnel,  equip- 
ment, capital,  organization  and  experience 
may  be  afforded  by  War  Finance  Cor- 
poration now  to  be  disbanded. 

The  members  of  Federal  Rural  Credits 
Board  therefore  will  act  in  a  dual  capacity 
— (a)  as  administrators  of  the  details  of  the 
whole  system,  and  (b)  as  directors  of  Fed- 
eral Rural  Credits  Company  which  per- 
forms certain  corporate  acts. 

Hence  the  salaries  and  expenses  of  the 
board  and  of  custodians,  appraisers  and  ex- 
aminers it  appoints  shall  be  paid  by  the 
United  States,  but  all  other  expenses  of  the 
System,  being  directly  or  indirectly  in  the 
interest  of  the  Company,  shall  be  paid  by 
the  Company  as  an  operating  expense. 

Broad  Powers  are   conferred  upon    the 

39 


RURAL  CREDITS  SYSTEM 

Board  throughout  the  bill.  It  may  organize 
and  charter  Federal  Debenture  Banks  and 
appoint  a  Custodian  in  each  to  have  charge 
of  the  collateral  which  secures  the  deben- 
tures issued  by  such  banks.  It  may  examine 
them  and  has  power  to  remove  officers 
found  incompetent. 

The  Board  also  may  charter  the  local  co- 
operatives as  described  in  Chapter  Six.  It 
may  have  them  examined,  as  well  as  the  live 
stock  loan  companies  it  approves. 

Rates  of  Interest  and  Discount,  also  all 
fees  and  other  charges,  are  to  be  estab- 
lished, reviewed  or  altered  by  Federal 
Rural  Credits  Board,  the  bill  providing  that 
they  shall  be  unifor]:n  so  far  as  practical. 

Extraordinary  precautions  will  be  found 
in  the  bill  whose  purpose  is  to  put  a  stop  to 
the  bonuses,  commissions  and  any  or  all 
forms  of  graft  by  which  farmers  in  particu- 
lar have  been  unmercifully  plucked,  robbed 
and  defrauded  for  these  many  years.  Those 
abuses  were  often  a  necessary  concomit- 
ant of  the  lack  of  any  adequate  method  of 
farm  finance.  The  bill  proposes  a  system 
whose  simplicity,   adequacy  and  economy 

40 


WHY  FEDERAL  RURAL  CREDITS  BOARD 

are  such  that  these  old  forms  of  graft  will 
just  naturally  go  into  the  discard. 

Federal  Debentures  are  to  be  prescribed 
by  the  Board  as  to  form,  terms  and  inter- 
est. It  supervises  their  issue,  rate  of  inter- 
est, sale,  redemption  and  cancellation  with 
the  same  care  that  is  provided  in  the  farm 
loan  act  for  Federal  farm  loan  bonds. 

These  instruments  are  called  debentures 
to  prevent  any  possibility  of  their  being 
confused  in  the  public  mind  with  United 
States  bonds  or  Federal  farm  loan  bonds. 

The  term  "debentures"  also  is  proper- 
ly applied  to  instruments,  the  security  for 
which  is  held  in  a  collateral  trust  by  the 
federal  Custodian  of  each  debenture  bank. 
The  safety,  availability  and  desirability  of 
Federal  debentures  as  emphasized  in  Chap- 
ter Five  manifestly  will  make  them  popular 
and  marketable. 

The  Other  Duties  and  powers  which  the 
bill  confers  upon  Rural  Credits  Board  can 
be  best  grasped  by  a  careful  reading  of  the 
entire  bill  which  forms  the  Appendix  of  this 
book. 

41 


CHAPTER  FOUR 

FEDERAL  RURAL  CREDITS  COM- 
PANY 

BESIDES  serving  as  supervisors  of  the 
System,  as  described  in  the  preceding 
chapter,  the  bill  also  incorporates  the 
five  members  of  Federal  Rural  Credits 
Board  as  "a  body  corporate  and  politic  in 
deed  and  in  law,"  to  have  succession  until 
dissolved  by  Congress  under  the  name  of 
"Federal  Rural  Credits  Company." 

Here  it  should  be  reiterated  that  this  is 
done  merely  to  create  a  corporation  which 
may  actually  transact  business  as  a  legal 
entity,  separate  and  distinct  from  the  ad- 
ministrative features  as  such  of  the  Rural 
Credits  Board. 

While  its  name  is  new,  as  a  matter  of  fact 
the  Company  is  not  new. 

As  Successor  to  War  Finance  Corpora- 
tion, Federal  Rural  Credits  Company  takes 
over  and  shall  be  vested  with  all  the  assets, 


RURAL  CREDITS  SYSTEM 

liabilities,  powers,  rights  and  privileges  of 
that  corporation.  The  latter's  organization 
and  personnel  as  a  going  concern  will  be 
available  to  the  company,  so  far  as  the 
same  are  required. 

The  change  does  not  even  call  for  an  ap- 
propriation.   On  the  contrary — 

The  Capital  Is  to  be  Reduced  from  the 
present  $500,000,000  to  half  that  sum,  as 
soon  as  the  liquidation  of  War  Finance 
Corporation  will  permit,  thus  returning 
$250,000,000  to  the  Treasury. 

The  capital  of  Rural  Credits  Company 
shall  never  be  less  than  $250,000,000,  and  it 
may  accumulate  a  surplus  to  an  amount  of 
an  additional  $100,000,000. 

Large  Revenues  will  Accrue  to  the  Unit- 
ed States  as  all  earnings  of  Federal  Rural 
Credits  Company,  in  excess  of  the  author- 
ized surplus,  go  to  the  federal  treasury  as  a 
franchise  tax. 

In  addition  to  such  revenue,  all  the  earn- 
ings of  each  Federal  Debenture  bank  over 
and  above  certain  specifications,  also  go  to 
the  Treasury  as  a  franchise  tax. 

44 


FEDERAL  RURAL  CREDITS  COMPANY 

That  is  to  say,  Uncle  Sam  gets  whatever 
profits  the  Rural  Credits  System  may  make 
as  such,  in  excess  of  a  moderate  dividend 
upon  capital,  after  the  accumulation  of  a 
reasonable  surplus.  In  addition  to  this,  as 
will  be  seen  in  Chapter  Five,  the  Treasury 
eventually  will  have  returned  to  it  all  of  the 
money  advanced  by  the  Company  as  initial 
capital  to  the  respective  debenture  banks. 

The  Initial  Capital  of  one  Federal  Deben- 
ture Bank  in  each  state  is  to  be  provided  by 
Federal  Rural  Credits  Company  at  the  rate 
of  $1,000  for  each  million  dollars  of  all  farm 
property  within  the  state  for  which  said 
bank  is  established,  as  shown  by  the  Four- 
teenth census,  with  the  exceptions  below 
mentioned. 

The  basis  thus  established  is  equivalent 
to  one  dollar  of  initial  capital  to  each  de- 
benture bank  for  each  $1000  represented 
by  the  total  value  of  all  farm  property. 

Including  the  adjustment  for  the  lesser 
agricultural  states,  the  accompanying  map 
shows  in  round  numbers  the  initial  capital 
available  for  each  State's  debenture  bank. 

45 


RURAL  CREDITS  SYSTEM 

The  precise  figures  appear  in  the  table  on 
pages  48-49. 

It  will  be  seen  that,  when  one  debenture 
bank  shall  have  been  established  in  every 
state,  a  total  of  $80,528,117  will  have  been 
invested  in  the  shares  thereof  by  Federal 
Rural  Credits  Company.  This  would  then 
leave  the  latter  $169,471,883  of  free  work- 
ing capital  out  of  its  minimum  capital  of 
$250,000,000. 

The  Reason  for  This  Amount  of  capital 
on  the  part  of  the  Company  is  not  only  that 
it  may  advance  the  initial  capital  to  the  de- 
benture bank  of  each  state,  but  also  that  it 
may  have  an  ample  amount  of  free  funds 
with  which  to  make  loans  to  debenture 
banks  or  other  institutions  provided  by  this 
Act,  or  to  buy  their  securities,  including 
federal  debentures. 

It  is  quite  likely  that  the  mere  presence 
of  this  amount  of  free  working  capital,  and 
the  market  it  insures  for  the  various  securi- 
ties that  may  be  uttered  in  this  intermediate 
system  of  credits,  will  so  stabilize  such  se- 
curities that  banks  generally  will  be  pleased 
to  accept  the  same  as  collateral. 

46 


FEDERAL  RURAL  CREDITS  COMPANY 

Precisely  similar  results  have  occurred  in 
the  experience  of  War  Finance  Corpora- 
tion. Where  it  offered  to  make  liberal  ad- 
vances to  co-operative  association,  that  fact 
so  strengthened  their  credit  that  existing 
banks  sought  their  business,  and  the 
amount  of  cash  that  actually  had  to  be  put 
up  by  the  Corporation  in  some  cases  was 
quite  limited. 

Another  reason  why  the  company  should 
have  liberal  working  funds  available  is  for 
use  in  extending  export  credits  during 
periods  of  abnormal  surplus,  as  well  as  for 
use  in  any  other  emergencies  that  may  arise. 

The  Return  to  the  central  company  of  its 
advance  of  initial  capital  to  the  debenture 
bank  in  each  state  will  come  about  in  the 
fullness  of  time,  as  the  bill  provides  and  as 
is  discussed  in  the  next  chapter.  As  this 
return  is  accomplished,  however,  the  rural 
credits  system  will  attain  proportions  so 
large  that  such  increase  in  the  funds  of  the 
central  organization  may  not  more  than 
keep  pace  with  the  country's  needs. 

The  near  future  is  to  witness  an  expan- 
sion of  agriculture,  and  a  development  of 

47 


RURAL  CREDITS  SYSTEM 

Debenture  Bank  in  Each  State 

TABLE    SHOWING    INITIAL   CAPITAL   AND    PROPOSED    INVEST- 
MENT BY  EACH  STATE  IN  DEBENTURES 

These  two  amounts  forming  total  funds  available  for  starting  the 

federal  debenture   bank   in   each   state. 
Column  1 — Total    internal    revenue    receipts    from    income    and    profits 

taxes  and  miscellaneous  taxes  for  year  ended  June  31,  1921,  in  round 

millions  of  dollars. 
Column  2 — Value  of  all  farm  property  in   1920  as  shown  by  the  four- 
teenth census  of  the  United  States. 
Column  3 — Names  of   regions   and  states. 
Column  4 — Initial  capital  of  federal  debenture  bank  of  each   state  put 

up  by  Federal  Rural  Credits   Company. 
Colimin  B — Amount  proposed  to  be  invested  by  each  state  in  debentures 

Issued  by  the  federal  debenture  bank  therein. 
Column  6 — Adds   columns  four  and  five  to  show   total   funds   available 

for  the  federal  debenture  bank  in  each  state  as  it  begins  business. 
1— 


Taxes 

Mil- 

2—Value 

8 — Names      4 — Initial  5 

— Invested  by 

6— Total 

lions 

Farm    Property 

of  States 

Capital 

Each   State 

Funds 

$4,595 

$77,924,100,338 

U    S    total     $77,924,100  $77,924,100  $155,848,200 

408 

1,173,019,594 

New     Eng. 

1,173,019 

1,173.019 

2,346,038 

1,757 

3,949,684,183 

Mid.     Atlan. 

3.949,684 

8,949.684 

7,899.308 

1,098 

17,245,862,593 

E.    N.    Cen. 

17.245.362 

17.245.362 

34.490,724 

313 

27,991,434,545 

W.  N.  Cen. 

27,991.434 

27.991.434 

55.982.868 

414 

6,132.917,760 

So.   Atlan. 

6.132.917 

6.132.917 

12,265.834 

112 

4.419,466,237 

E.    S.     Cen. 

4,419.466 

4,419,466 

8,838.932 

157 

7,622,066,027 

W.    S.    Cen. 

7,622.066 

7.622.066 

15,244,132 

55 

4,083,137,959 

Mountain 

4,083,137 

4.083.137 

8,160.274 

247 

5,307,011,460 

Pacific 
New   England 

5,307,011 

5,307,011 

10.614.022 

18 

270.526,733 

Maine 

270,526 

270.526 

541.052 

10 

118.656.115 

New    Hamp. 

118.656 

118.656 

237.312 

6 

222,736,620 

Vermont 

222.736 

222.786 

445,472 

260 

800,471,743 

Massachusetts 

300.471 

300.471 

600,942 

42 

33.636.766 

Rhode    Island 

33.636 

38.636 

67,272 

72 

226.991,617 

Connecticut 
Middle  Atlantic 

226,991 

226,991 

453,982 

1,125 

1,908,483,201 

New  York 

1,908,483 

1.908,483 

3,816,966 

143 

311,847,948 

New  Jersey 

311,847 

311.847 

623,694 

489 

1,729.353,034 

Pennsylvania 

1,729,353 

1,729,353 

3.458,706 

East  North  Central 

285 

3.095,666.336 

Ohio 

3,095,666 

3.095.666 

6.191.332 

889 

6,666,767,235 

Illinois 

6.666.767 

6.666.767 

13,333.534 

78 

3,042,311,247 

Indiana 

8,042.311 

3.042.311 

6,084.622 

272 

1,763,334,778 

Michigan 

1.763,334 

1.763.334 

3.526,668 

74 

2,677,282,997 

Wisconsin 

2.677.282 

2.677,282 

5,354,564 

We.st  North  Central 

78 

8,787,420,118 

Minnesota 

3,787,420 

3.787,420 

7,574,840 

38 

8,524,870,956 

Iowa 

8.524,870 

8,524,870 

17,049,740 

48 


DEBENTURE  BANK  IN  EACH  STATE 


1— 

Taxes 

Mil- 

2—Value 

3 — Regions     i 

—Initial  5 

— Invested  by 

6— Total 

lions 

Farm   Property 

and  States 

Capital 

Each   State 

Funds 

126 

3,591.068.085 

Missouri 

8,591,068 

8.591.068 

7,182,136 

3 

1.759,742.995 

No.    Dakota 

1,759,742 

1.759.742 

3,519,484 

6 

2,823,870,212 

So.     Dakota 

2,823.870 

2.823.870 

5,647,740 

24 

4,201.655,992 

Nebraska 

4,201,655 

4.201,655 

8,403,310 

89 

3,302,806.187 

Kansas 
South  Atlantic 

3,302,806 

3,302,806 

6,605,612 

12 

80.137.614 

Delaware 

80,137 

80,137 

160,274 

72 

463,638,120 

Maryland 

463,638 

463.638 

927,276 

19 

5,957.987 

Dist.  of  Col. 

5,927 

5.927 

11,854 

62 

1,196,555,772 

Virgina 

1,196,555 

1.196.555 

2,393,110 

42 

496,439,617 

W.    Virginia 

496,439 

496,439 

992,878 

125 

1,250,166.995 

No.    Carolina 

1,250,166 

1.250.166 

2,500,382 

29 

953,064.742 

So.    Carolina 

953,064 

953.064 

1,906,128 

37 

1.356,685.196 

Georgia 

1,356,685 

1.356,685 

2,713,370 

16 

330,301.717 

Florida 

330,301 

330,301 

660,602 

East  South  Central 

61 

1.511.901,077 

Kentucky 

1,511.901 

1,511,901 

3.023,802 

34 

1,251,964,585 

Tennessee 

1.261.964 

1,251,964 

2,503,928 

18 

690.848.720 

Alabama 

690,848 

690,848 

1,381,696 

9 

964.751,855 

Mississippi 

964,751 

964,751 

1,929,502 

West   South  Central 

11 

924,395,483 

Arkansas 

924.395 

924,395 

1,848,790 

40 

589,826,679 

Louisiana 

589,826 

589,826 

1,179,652 

28 

1,660,423.544 

Oklahoma 

1,660,423 

1,660,423 

3.320.846 

78 

4.447,420.321 

Texas 
Mountain 

4,447,420 

4,447,420 

8.894.840 

6 

985.961.308 

Montana 

985,961 

985.961 

1.971,922 

6 

716,137,910 

Idaho 

716,137 

716,137 

1,432,274 

8 

334,410,590 

Wyoming 

334.410 

334,410 

668,820 

34 

1,076,794,749 

Colorado 

1,076,794 

1,076,794 

2,153,588 

2 

325,185,999 

New    Mexico 

325,185 

325,185 

650,370 

4 

233,592,989 

Arizona 

233,592 

233,592 

467,184 

11 

311,274,728 

Utah 

311,274 

311,274 

622,548 

1 

99,779,666 

Nevada 
Pacific 

99,779 

99.779 

199.558 

37 

1,057.429,848 

Washington 

1,057,429 

1,057,429 

2,114,858 

28 

818,559,751 

Oregon 

818.559 

818,559 

1,637,118 

182 

3.431.021,861 

California 

3.431,021 

3,431,021 

6,862,042 

The  bill  provides  that  in  states  where  the  total  value  of  farm 
property  is  under  $500,000,000.  the  initial  capital  advanced  shall  be 
$500,000  except  that  in  states  where  the  value  of  farm  property  is 
less  than  $100,000,000,  the  initial  capital  so  advanced  shall  be  $100,000. 
Thus  $100,000  will  be  advanced  to  Nevada.  Delaware  and  Rhode 
Island,  while  $500,000  will  be  the  advance  to  Maine.  New  Hampshire, 
Vermont,  Massachusetts,  Connecticut,  New  Jersey,  West  Virginia,  and 
Florida. 

49 


RURAL  CREDITS  SYSTEM 

all  productive  industry,  throughout  the 
United  States  which  will  require  large  and 
generous  as  well  as  safe  and  conservative 
means  for  adequately  financing  it. 

The  Basis  Used  for  Apportioning  the  in- 
itial capital  seems  to  be  the  fairest  that  can 
be  devised.  It  is  true  that  the  Fourteenth 
census  shows  a  highly  inflated  value  for  all 
farm  property,  and  that  such  inflation  is 
greatest  in  certain  western  states. 

It  is  true  also  that  such  inflation  was  rel- 
atively less  at  the  South,  least  of  all  in 
the  Middle  and  Eastern  States. 

Hence  it  is  that  by  this  apportionment 
New  England  receives  a  relatively  small 
sum,  although  she  pays  a  vastly  larger  vol- 
ume of  federal  internal  revenue  taxes  than 
any  of  the  western  states  that  receive  two 
or  three,  and  in  the  case  of  Iowa  over  four 
times,  as  much  initial  capital.  The  discrim- 
ination against  the  Empire  state  is  even 
larger.  Further  comparisons  may  be  made 
by  means  of  the  tax  revenue  shown  in  the 
first  column  of  the  tabular  exhibit  page  48. 

This  Injustice  to  the  East  is  remedied  in 

50 


FEDERAL  RURAL  CREDITS  COMPANY 

part,  however,  by  the  exception  in  paragraph 
4  of  Section  6  of  the  bill — that  in  any  state 
wherein  the  total  value  of  all  farm  property 
is  under  $500,000,000,  the  company  shall 
invest  $500,000  in  the  initial  capital  of  the 
land  bank.  This  provision  applies  to  Maine, 
New  Hampshire,  Vermont,  Massachusetts, 
Connecticut,  New  Jersey,  West  Virginia, 
and  Florida. 

Several  important  western  states,  that 
certainly  need  more  capital  for  their  deben- 
ture bank,  also  come  under  this  provision. 
These  are  Wyoming,  New  Mexico,  Arizona 
and  Utah. 

The  paragraph  referred  to  also  provides 
that  $100,000  shall  be  put  up  for  the  deben- 
ture bank's  initial  capital  by  the  Company 
in  states  having  less  than  $100,000,000  of 
farm  property — Nevada,  Delaware  and 
Rhode  Island. 

It  will  be  seen  that  taking  all  the  states 
into  consideration,  the  apportionment 
works  out  as  nearly  equitable  as  possible, 
and  also  provides  sufficient  capital  for  the 
objects  desired. 

51 


RURAL  CREDITS  SYSTEM 

A  Question  has  been  Raised  whether  the 
smaller  states  will  have  sufficient  busi- 
ness to  require  one  debenture  bank. 
Rhode  Island  and  Connecticut  have  been 
mentioned  as  states  so  small  as  not  to  re- 
quire the  benefits  of  this  system. 

Yet  the  agriculture  of  even  Little  Rhody 
is  of  vital  importance  to  the  teeming  popu- 
lation of  that  small  state.  Those  people 
must  be  fed  and  clothed  in  order  to  labor 
in  her  manufactures  as  well  as  to  enable  her 
to  yield  $42,000,000  in  direct  annual  rev- 
enues to  the  federal  government — a  much 
larger  sum  than  is  paid  by  several  of  the 
great  agricultural  states. 

Certainly  a  temporary  advance  of  only 
$100,000  for  the  initial  capital  of  Rhode 
Island's  federal  debenture  bank  is  the  least 
recognition  that  can  be  made  of  the  impor- 
tance of  her  position  in  agriculture,  indus- 
try and  revenue  producing  power. 

The  same  argument  applies  with  even 
greater  force  to  a  few  of  the  other  eastern 
and  southern  states  that  come  in  under  this 
exception. 

As  to  Wyoming,  New  Mexico,  Arizona 

52 


FEDERAL  RURAL  CREDITS  COMPANY 

and  Utah  with  their  great  but  relatively  un- 
developed agricultural  possibilities,  cer- 
tainly $500,000  as  the  temporary  advance 
of  initial  capital  for  the  debenture  bank  in 
each  of  these  states  is  barely  commensurate 
with  their  needs. 

The  Great  Revenue  Producing  States  of 

Massachusetts,  New  York,  Pennsylvania, 
Ohio,  Michigan  and  Illinois  justly  feel  that 
they  have  been  grossly  discriminated 
against  by  War  Finance  Corporation.  While 
its  half  billion  of  capital  indirectly  came  so 
largely  from  these  States,  its  loans  to  farm- 
ers in  some  of  these  States  have  been  rela- 
tively little  or  nil. 

"The  nearly  7,000  loans  it  has  author- 
ized to  banks  in  the  agricultural  sec- 
tions aggregated  about  $161,000,000;  the 
loans  authorized  to  live  stock  loan  compa- 
nies and  banks  upon  the  security  of  live 
stock  totaled  more  than  $84,000,000;  and 
those  authorized  to  co-operative  marketing 
associations  amounted  to  approximately 
$64,000,000."  Probably  not  5  per  cent  of  this 
vast    total,    exceeding    $300,000,000,    was 

53 


RURAL  CREDITS  SYSTEM 

loaned  to  or  for  the  benefit  of  farmers  in 
the  revenue  producing  states  named. 

No  Criticism  Is  Intended  of  the  conduct 
of  War  Finance  Corporation  by  the  fore- 
going remarks.  Its  work  was  an  emergency 
measure.  Its  advances  were  made  with  the 
utmost  speed,  consistent  with  reasonable 
safety,  in  localities  where  the  thawing  out 
of  frozen  credits  was  expected  to  be  most 
advantageous  to  the  agricultural  industry. 

Even  in  those  sections  farmers  who  failed 
to  receive  advances  or  were  denied  loans  by 
their  banks  or  associations  from  War 
Finance  Corporation,  were  as  bitterly  dis- 
appointed as  were  farmers  in  other  states 
and  regions  where  not  even  the  phantom  of 
these  funds  was  ever  revealed. 

The  Work  Done  by  War  Finance  Corpo- 
ration from  the  time  its  resumed  operations 
4  January,  1921,  to  and  including  10  June, 
1922,  shows  that  in  that  period  it  authorized 
loans  aggregating  "$247,197,357to banking 
and  financing  institutions,  including  live 
stock  loan  companies,  for  agricultural  and 
live  stock  purposes.    Of  this  sum,  $227,000,- 

54 


FEDERAL  RURAL  CREDITS  COMPANY 

633  had  actually  been  paid  out  on  that  date, 
and  $4,965,408  represents  applications 
which  were  approved  by  the  Corporation 
but  subsequently  withdrawn  by  the  appli- 
cants for  various  reasons.  The  remainder, 
approximately  $15,000,000,  was  in  the 
course  of  being  paid  out. 

"In  the  case  of  loans  to  co-operative  mar- 
keting associations,  the  situation  is  some- 
what different.  These  organizations  esti- 
mate their  probable  needs  during  a  certain 
period  and  make  application  to  the  Corpo- 
ration for  an  amount  which,  in  their  opin- 
ion, will  cover  these  needs.  Each  applica- 
tion is  considered  by  the  Board  and,  if  ap- 
proved, the  Board  agrees  to  make  advances 
up  to  a  specified  amount,  within  a  specified 
period,  as  the  money  is  needed,  as  the 
proper  documents  are  submitted  to  the 
Federal  Reserve  bank,  and  as  all  require- 
ments are  met. 

"In  practically  every  case,  the  agreement 
by  the  Corporation  to  make  an  advance  to  a 
co-operative  marketing  association  has 
made  it  possible  for  the  association  to  se- 
cure considerable  funds  through   banking 

55 


RURAL  CREDITS  SYSTEM 

channels  which  otherwise  they  would  not 
have  been  able  to  obtain.  This  is  clearly 
illustrated  by  the  fact  that,  while  the  Cor- 
poration agreed  to  lend  more  than  $64,000,- 
000  to  co-operative  marketing  associations 
in  all  parts  of  the  country,  to  assist  them  in 
the  orderly  marketing  of  their  products,  in 
most  cases  only  a  small  part — approximate- 
ly $18,200,000— of  the  credit  authorized  has 
actually  been  used. 

"At  one  time  a  co-operative  association 
in  California  applied  to  the  Corporation  for 
an  advance  of  $2,500,000.  The  association 
had  made  an  effort  to  secure  the  funds  it 
needed  from  banking  institutions  without 
success.  The  board  suggested  that  they 
take  half  the  amount  from  the  Corporation 
and  then  see  what  the  banks  would  do. 
Shortly  after  the  transaction  was  an- 
nounced a  banker  got  in  touch  with  the  rep- 
resentatives of  the  association  and  asked 
them  to  take  all  the  money  they  required 
from  his  institution.  In  other  words,  the 
agreement  on  the  part  of  the  Corporation 
to  make  an  advance  has  an  important  psy- 

56 


FEDERAL  RURAL  CREDITS  COMPANY 

chological  effect    entirelj^  aside  from   the 
actual  amount  of  money  loaned. 

The  repayments  received  by  the  Corpora- 
tion on  account  of  all  loans,  that  is,  loans 
made  both  before  and  after  the  resumption 
of  operations  in  January,  1921,  amount  to 
$152,733,520.  Of  this  amount,  $36,055,352 
represents  repayment  on  account  of  loans 
made  under  the  war  powers  of  the  Corpora- 
tion, $74,359,430  on  account  of  loans  for  ex- 
port purposes,  and  $42,322,738  on  account 
of  loans  for  agricultural  and  live  stock  pur- 
poses under  the  Agricultural  Credits  act." 

A  Permanent  System  for  Rural  Credits 
obviously  demands  that  capital  be  made 
available  to  a  degree  based  upon,  if  not 
commensurate  with  the  total  investment  in 
agriculture  and  the  volume  of  business 
growing  out  thereof. 

For  instance,  to  adequately  deal  with  the 
rural  credits  problem  of  Illinois,  a  state 
with  nearly  seven  billions  of  value  repre- 
sented in  all  its  farm  property,  requires 
about  seven  millions  for  the  initial  capital 
of  the  Federal  Debenture  Bank  which  is  to 

57 


RURAL  CREDITS  SYSTEM 

finance  the  agriculture  of  that  great  state, 
other  than  current  commercial  credits  and 
long  term  farm  mortgage  credits. 

On  the  other  hand,  Delaware  with  only 
80  millions  of  farm  property  can  make  a 
fair  start  in  rural  credits  service  to  her 
farmers  with  an  initial  capital  of  only 
$100,000  for  the  Federal  Debenture  Bank 
of  Delaware.  The  corresponding  condi- 
tions in  each  of  the  other  states  are  clearly 
set  forth  in  the  table  on  page  48. 

The  Duties  of  the  Company  are  to  employ 
its  free  capital  in  the  purchase  of  deben- 
tures based  upon  agricultural  loans,  live 
stock  paper,  commodity  paper  or  real  estate 
obligations,  as  defined  in  the  Act,  in  such  a 
way  as  to  benefit  the  market  for  these  secu- 
rities and  facilitate  to  the  utmost  the  rural 
credit  needs  of  the  different  regions  of  the 
United  States.  It  also  may  loan  its  funds 
to  institutions  under  the  act  for  similar 
purposes. 

Its  powers  in  this  respect  are  broad,  yet 
wisely  restricted.  They  enable  it  to  be  of 
large  service,  with  a  minimum  of  risk  and 


FEDERAL  RURAL  CREDITS  COMPANY 

with  a  maximum  of  benefit  to  agriculture 
in  particular  and  to  the  nation  as  a  whole. 

An  Abnormal  Surplus  of  any  staple  agri- 
cultural product  in  the  United  States  may 
be  dealt  with  by  the  company  under  the  spe- 
cial provisions  of  Section  7. 

It  provides  that,  in  such  emergency  the 
Company  may  make  advances  for  not  ex- 
ceeding one  year  "to  enable  producers  of  or 
dealers  in  such  products  to  carry  them  un- 
til they  can  be  manufactured,  processed,  ex- 
ported, or  sold  for  export  in  an  orderly 
manner." 

This  is  an  extraordinary  provision  for 
meeting  extraordinary  conditions.  It  is  one 
of  the  chief  features  by  which  the  Norbeck 
bill  varies  from  the  others.  It  is  based  upon 
much  careful  thought  by  competent  men  of 
large  experience  in  our  domestic  and  for- 
eign trade  and  has  the  approval  of  the  co- 
operative association  which  has  had  a  long 
and  successful  experience  in  orderly  mar- 
keting. 

The  existence  of  this  power  is  one  assur- 
ance against  its  ever  having  to  be  used.  Yet 
if  an  emergency  becomes  so  serious  as  to 

59 


RURAL  CREDITS  SYSTEM 

require  v/isely  constructive  and  reasonably 
generous  dealings  to  tide  over  a  crisis  in 
our  export  trade,  section  seven  provides 
therefor,  even  to  the  extent  of  conserva- 
tively limited  use  of  the  Federal  Reserve 
System. 

Had  section  seven  been  in  effect  early  in 
1921,  operations  thereunder  could  have 
done  much  to  prevent  the  fearful  collapse 
in  corn  values,  an  incident  that  worked  fi- 
nancial havoc  throughout  many  states.  That 
situation  could  have  been  ameliorated,  un- 
der section  seven,  with  relatively  small  risk 
and  at  much  benefit  to  the  whole  country. 

To  Organize  this  System  of  intermediate 
credits,  whereby  may  be  mobilized  and 
rendered  available  the  character,  security 
and  collateral  of  the  great  agricultural  pro- 
ducing masses,  is  vastly  more  important 
than  the  amount  of  capital  stock  that  may 
be  paid  up. 

An  effective  organization  is  the  all  im- 
portant factor  to  be  recognized  Criticise 
the  details  of  the  plan,  if  you  please,  but  do 
not  overlook  this  its  vital  strength. 

60 


FEDERAL  RURAL  CREDITS  COMPANY 

On  the  other  hand,  an  ample  reservoir  of 
capital  as  provided  by  the  central  company 
at  Washington,  with  its  additional  redis- 
count powers  for  emergencies,  will  go  far 
to  insure  the  absolute  success  of  this  plan 
for  intermediate  credits. 

Indeed  it  may  be  that,  except  in  times  of 
strain,  the  amount  of  federal  debentures 
which  may  have  to  be  issued  by  the  bank  in 
any  state  will  be  relatively  limited.  But  the 
insurance  is  there,  should  it  ever  be  re- 
quired. 


61 


WAR  FINANCE  CORPORATION 

OPERATIONS  OF  THE  WAR  FINANCE  CORPORATION  FROM 
JANUARY  4,  1921,  TO  AND  INCLUDING  JUNE  10,  1921 

I.  Advances  to  assist  in  financing  exports  under  Sections  21,  22,  and 

24  (Par.  2)  approved  from  January  4,  1921,  to  June  10,  1922,  inclu- 
sive   (1). 

Grain    $  5,209,810.69 

Tobacco    3.596,369.77 

Cotton     33,572,373.21 

Canned   fruits    500,000.00 

Meat  products    1,000,000.00 

Condensed    milk     1,000,000.00 

Textile  products    250,000.00 

Sheet    steel     180,000.00 

Copper    145,600.00 

Sugar-mUl    machinery    470,966.36 

Agricultural   machinery    600,000.00 

Railroad  equipment    2,925,000.00 

Lumber     1,000,000.00 

(2)     Total $50,350,120.03 

(1)  Section  21  was  added  to  the  original  War  Finance  Corporation 
Act  by  the  Act  of  March  3,  1919,  and  Sections  22  and  24  by  the 
Agricultural    Credits    Act    of    August    24,    1921. 

(2)  Does  not  include  advances  aggregating  $27,387,816.10  originally 
applied  for  and  approved  under  Section  21  for  export  purposes,  and 
subsequently  withdrawn  by  the  applicants  and  resubmitted  and  ap- 
proved as  advances  for  agricultural   purposes  under  Section  24. 

(2)  Of  the  total  amonni.  $57,673,650.26  represents  advances  approved 
subsequent    to    August    24,    1921. 

II.  Advances  to  banking  and  financing  institutions  and  cooperative 
associations  for  "agricultural  and  live  stock  purposes"  under  Section 
24  (Par.  1)  approved  from  August  24,  1921,  to  June  10,  1922,  incln- 
sive    (3). 

(a)      By  Commodities 

Cotton    $  23.504,200.52 

Grain    21,290.189.31 

Live  stock   85,085,168.30 

Sugar   beets    9,996,000.00 

Sugar  cane   350.000.00 

Rice     2,750,000.00 

Canned    fruits     300.000.00 

Dried   fruits    1.250.000.00 

Peanuts     1.142,334.00 

Tobacco    10,000,000.00 

Hay    260,000.00 

Gen.  ag'l  purposes    150,661,915.84 

(5)     Total $306,589,807.97 

62 


(b)     By    States 

(1)  To    Banking:    and    Financing    Institutions. 

Alabama                        $      802,703.30  Nevada  504,500.00 

Arizona  4,333,000.00  New    Mexico  7,999,127.69 

Arkansas  553,500.00  New  York  600,000.00 

California  2,684.671.28  North   Carolina  8,633,500.00 

Colorado  10,587,172.33  North  Dakota  20,749,761.21 

Florida  782.000.00  Ohio  1,433,806.00 

Georgia  6,585,934.88  Oklahoma  3,902,498.68 

Idaho  5.692,237.12  Oregon  5,855,190.64 

Illinois  6,625,873.14  South  Carolina  10,407.259.25 

Indiana  1,385,950.00  South    Dakota  15,278,684.50 

Iowa  23,972,277.65  Tennessee  3.608.202.11 

Kansas  5.085,206.63  Texas  22,618,799.12 

P"^ucky  1"-^^^^^  Utah  11,766,676.00 

^^r^i^^^  ^'^n^'nnnnn  Virginia  2,005,700.00 

Michigan  105,000.00  _.       ,    .         .  onr,  nnr^   on 

Minnesota  12.623,109.26  Washington                        .  ^^°•I^^^° 

Mississippi  1,517,838.19  Wisconsin                            5,792,000.00 

Missouri  8,056,812.43  Wyoming                             8.466.483.18 

Montana  11,026,402.50                                          

Nebraska  12,123.967.15           (4)     Total    $247,197,357.87 

(b)     By  States 

(2)  To  Cooperative  Association.a. 

Alabama     $      100,000.00 

Arizona    1.200,000.00 

Arkansas      1,250,000.00 

California    3,050,000.00 

Georgia    350.000.00 

Idaho     962,355.66 

Kentucky    10,000,000.00 

Minnesota    15,000,000.00 

Mississippi     5.060,060.29 

Oklahoma    6.000.000.00 

Texas    10.047,566.50 

Virginia     1.044.634.00 

Washington     5,327,833.65 

(5)     Total     '.$59,392,450.10 

(3)  Section  24  was  added  to  the  original  War  Finance  Corporation 
Act   by    the    Agricultural    Credits    Act   of    August   24,    1921. 

(4)  Includes  application  totaling  $4,965,408.60  which  were  approved 
by  the  Corporation,  but  subsequently  withdrawn   by  the  applicant. 

(5)  This  sum  includes  advances  aggregating  $27,387,816.10  orginally 
applied  for  and  approved  for  export  purposes  (under  Section  21) 
and  subsequently  withdrawn  by  the  applicants  and  resubmitted  and 
approved  as  advances  for  agricultural  purposes  under  the  Agricultural 
Credits  Act  of  August  24,  1921,   (Section  24). 

III.     Summary  of   advances  for   export  and   agricultural   purposes. 

To  cooperative    associations    $  64,654,634.00 

To  banking    and    financing    institutions     283,219,585.11 

To  exporters     9,065,708.89 

Total   $356,939,928.00 

63 


CHAPTER  FIVE 
FEDERAL  DEBENTURE  BANKS 

THE  nature,  variety  and  magnitude  of 
the  credit  instruments  and  transac- 
tions arising  out  of  an  adequate  sys- 
tem of  rural  credits,  will  be  such  as  impera- 
tively to  require  intimate  acquaintanceship 
therewith  on  the  part  of  a  supervising  in- 
stitution within  the  State  and  covering  the 
whole  State. 

Only  in  this  manner  may  assurance  be 
made  doubly  sure  that  the  paper  offered  by 
farmers  and  others  as  collateral  for  the  is- 
sue of  debentures  shall  in  every  way  com- 
ply with  the  letter  and  spirit  of  the  Act  pro- 
posed. 

This  statement  will  be  approved  gener- 
ally by  country  bankers  and  others  expe- 
rienced in  the  agricultural  phases  of 
finance.  One  institution  in  each  State  which 
is  to  pass  upon  the  securities  offered  will 
possess  the  knowledge  of  conditions  in  each 

65 


RURAL  CREDITS  SYSTEM 

locality  so  essential  to  intelligent  judgment 
of  values  and  of  credits. 

Each  States  Owes  a  Duty,  also,  to  the 
basic  industry  of  agriculture  within  its 
borders.  This  is  as  true  of  the  so-called 
manufacturing  or  industrial  States  as  of 
those  in  which  agriculture  is  the  predomi- 
nant industry. 

Heretofore,  some  States  of  the  latter 
type  have  been  only  too  willing  to  accept 
Federal  aid,  without  doing  their  part  to  de- 
serve it.  Since  any  form  of  aid  from  the 
Treasury  to  the  respective  States  implies 
that  the  Federal  taxes  derived  from  the 
wealthier  States  shall  be  expended  in  over- 
generous  proportions  in  States  of  less  reve- 
nue-producing power,  it  is  all  the  more  ap- 
parent that  States  of  the  former  type  will 
become  restive  over  any  form  of  federal  co- 
operation which  fails  to  take  cognizance  of 
this  disparity. 

The  Least  Any  State  Should  Do,  there- 
fore, to  insure  the  success  of  an  adequate 
rural  credit  system,  are  these  two  things: 

(a)  It  should  put  up  one  dollar  of  state 
funds  for  this  purpose  against  each  dollar 

66 


FEDERAL  DEBENTURE  BANKS 

supplied  directly  or  indirectly  from  the  fed- 
eral treasury. 

(b)  It  should  decree  that  the  debentures 
issued  by  its  Federal  Debenture  bank,  and 
any  paper  uttered  by  or  indorsed  by  Fed- 
eral Rural  Credits  Company,  shall  be  a 
legal  investment  for  all  trustees,  fiducia- 
ries, courts,  banks,  trust  companies,  saving 
institutions,  insurance  companies  and  any 
or  all  other  corporations  or  institutions  in- 
corporated under  the  laws  of  or  doing  busi- 
ness within  the  state. 

Matching  Federal  By  State  Money,  for 
purposes  conducted  wholly  under  federal 
authority,  is  becoming  increasingly  unpop- 
ular among  the  States  that  pay  the  largest 
taxes  to  the  federal  government,  both  ac- 
tually and  relatively.  This  feeling  is  so 
strong  in  New  York,  for  instance,  that  her 
legislature  refused  to  accept  her  quota  un- 
der the  so-called  maternity  act,  but  proceed- 
ed to  establish  a  work  of  that  character 
solely  under  the  auspices  of  the  State  and 
wholly  at  its  expense.  That  is  to  say.  New 
York  feels  so  deeply  on  this  subject  that  the 
federal  taxes  she  pays  not  only  furnish 

67 


RURAL  CREDITS  SYSTEM 

much  of  the  so-called  maternity  fund  for 
other  states,  but  in  addition  to  that,  New 
York  puts  up  her  own  funds  for  her  own 
work  in  behalf  of  what  have  come  to  be 
known  as  "better  babies!" 

Were  it  not  for  the  fact  that  the  Rural 
Credits  Company  succeeds  to  the  assets  of 
War  Finance  Corporation,  and  proposes 
also  to  return  to  the  federal  treasury  half 
of  that  corporation's  capital  of  $500,000,- 
000,  it  would  be  difficult  to  secure  favorable 
action  in  either  House  or  Senate  upon  this 
feature  of  the  proposed  bill. 

The  Question  of  State  Rights,  curiously 
enough,  is  now  being  urged  by  such  states 
as  Michigan,  Illinois,  Pennsylvania,  New 
York  and  Massachusetts ! 

The  chart  at  the  opening  of  this  chapter 
emphasizes  why  these  great  revenue  pro- 
ducing states  are  so  restive.  That  chart 
should  be  carefully  studied  with  reference 
to  this  phase  of  the  subject.  Also  see  the 
tables  on  pages  48-49. 

This  condition  of  affairs  must  be  recog- 
nized in  the  effort  to  build  up  any  plan  of 
rural  credits.    Back  of  it  lies  the  principle 

6& 


FEDERAL  DEBENTURE  BANKS 

of  independence,  of  individual  initiative,  of 
self-help,  which  if  properly  recognized  and 
intelligently  employed  may  become  founda- 
tions of  imperishable  strength  for  a  rural 
credits  system. 

This  Is  Why  the  author  presses  with  all 
earnestness  the  suggestions  that  there  be 
one  Federal  Debenture  Bank  in  each  state, 
that  the  initial  capital  thereof  be  furnished 
out  of  the  funds  of  Federal  Rural  Credits 
Company,  and  that  the  state's  participation 
in  the  establishment  of  such  a  bank  take  the 
form  of  a  pledge  to  invest  in  its  debentures 
at  par  an  amount  equal  to  the  initial  capital. 

That  is  to  say,  to  repeat  the  illustration  of 
the  "Prairie"  state  used  in  the  previous 
chapter,  if  Illinois  comes  into  the  Federal 
Rural  Credits  System  the  initial  capital  for 
the  Federal  Debenture  Bank  of  that  state 
will  be  $6,666,767,  while  the  state  itself  by 
the  act  of  the  legislature  would  agree  to 
keep  invested  an  equal  sum  in  the  deben- 
tures of  such  bank.  This  would  provide 
$13,353,534  in  funds  for  the  Federal  Deben- 
ture Bank  of  Illinois — none  too  much  for 
an   agriculture   having   seven   billions   of 

69 


RURAL  CREDITS  SYSTEM 

capital  invested,  not  to  mention  the  vast  in- 
terests of  her  people  in  related  industries. 

The  State  Gets  an  Advantage,  even  on 
this  basis,  in  that  the  government  repre- 
sented by  Federal  Rural  Credits  Company- 
assumes  practically  all  the  risk  by  putting 
up  all  the  initial  capital,  the  state's  invest- 
ment in  debentures  coming  ahead  of  and  be- 
ing a  lien  upon  the  assets  prior  to  the  capi- 
tal stock. 

In  other  words,  any  state  may  come  into 
the  new  Rural  Credits  System  by  taking  a 
first  lien  on  the  assets  of  its  debenture  bank 
to  the  amount  of  its  investment,  besides 
having  the  same  further  guaranteed  100 
per  cent  in  the  form  of  the  initial  capital 
supplied  from  Washington,  while  the  de- 
bentures themselves  are  guaranteed  prin- 
cipal and  interest. 

The  table  on  pages  48-49  gives  the  statis- 
tics for  each  state  in  great  detail,  as  to  ini- 
tial capital,  amount  of  investment  by  each 
state,  and  total  funds  that  may  thus  become 
available. 

The  State  always  is  to  have  adequate  rep- 
resentation on  the  directorate  of  its  deben- 

70 


FEDERAL  DEBENTURE  BANKS 

ture  bank,  to  still  further  safeguard  the 
State's  investment  in  the  debentures 
thereof. 

The  Members  of  Each  Debenture  Bank 

consist  of  existing  banking  institutions 
within  the  State,  whether  under  national 
or  state  laws,  who  become  members  by  in- 
vesting in  its  shares  in  the  same  proportion 
that  they  buy  shares  of  their  Federal  Re- 
serve Bank. 

Federal  co-operative  agricultural  asso- 
ciations must  invest  10  per  cent  of  their 
capital  in  the  debenture  bank  of  their  state, 
while  co-operatives  otherwise  incorporated 
also  may  become  members. 

Both  types  of  membership  are  to  be  fully 
represented  on  the  directorate  of  the  de- 
benture bank. 

Eliminate  Washington — Net  earnings  of 
a  debenture  bank,  over  and  above  the  divi- 
dends and  accumulations  permitted,  should 
be  sufficient  gradually  to  buy  in  and  be  sub- 
stituted for  the  shares  of  initial  capital  held 
in  Washington. 

As  Washington's  interest  is  reduced,  her 

71 


RURAL  CREDITS  SYSTEM 

representation  on  the  directorate  is  reduced 
likewise  until,  when  the  member  capital 
and  earnings  have  retired  all  of  the  Wash- 
ington interest,  the  Federal  Debenture 
Bank  becomes  owned  wholly  by  its  mem- 
bers within  its  State.  Then  only  its  Custo- 
dian remains  as  a  Federal  director,  al- 
though at  that  time  and  thereafter  the  bank 
of  course  continues  to  be  an  integral  part  of 
the  whole  rural  credits  system,  and  subject 
to  the  oversight  of  Federal  Rural  Credits 
Board,  thus  insuring  continued  co-opera- 
tion with  the  debenture  bank  in  each  of  the 
other  states. 

No  Joint  and  Several  Liability  is  imposed 
upon  any  debenture  bank.  Each  is  respon- 
sible for  its  own  obligations.  Each  tub 
stands  on  its  own  bottom. 

This  is  an  important  principle.  In  one 
sense,  it  is  a  concession  to  state  rights;  in 
another  sense,  it  is  an  inducement  for  the 
people  in  any  state  to  retire  as  soon  as  may 
be  all  of  the  shares  in  its  debenture  bank 
held  by  Washington. 

Many  of  the  States  never  would  submit 
to  having  their  debenture  bank  jointly  and 

72 


FEDERAL  DEBENTURE  BANKS 

severally  liable  for  the  debts  of  similar  in- 
stitutions in  other  states.  So  to  do  might 
burden  the  strong  banks  with  the  poverty 
of  the  weak  banks.  It  might  tempt  one  in- 
stitution into  extremes  of  hazard  which  it 
would  not  be  willing  to  assume  if  it  felt 
that  it  alone  was  responsible. 

The  Federal  Debenture  Bank  of  Iowa,  for 
instance,  would  willingly  and  could  safely 
go  far  in  helping  out  a  crisis  such  as  befell 
her  corn  belt  farmers  in  the  autumn  of  1921, 
when  the  price  of  that  great  staple  was  ar- 
bitrarily, unfairly,  unjustly,  uneconomi- 
cally  and  wrongfully  depressed  and  deflat- 
ed to  the  point  of  ruin.  But  the  Iowa  bank 
would  not  wish  to  be  responsible  directly  or 
indirectly,  in  part  or  in  whole,  or  jointly  or 
severally  liable,  for  the  obligations  of  say 
the  Texas  bank,  which  at  the  very  same 
juncture  might  be  tempted  to  go  "long"  on 
cotton  paper  if  it  knew  that  its  responsibil- 
ity therefor  could  be  shunted  off  on  to  the 
other  debenture  banks. 

Yet  an  Outright  Guarantee  of  both  prin- 
cipal and  interest  of  all  the  debentures  is- 
sued by  any  or  all  of  the  debenture  banks  is 

73 


RURAL  CREDITS  SYSTEM 

highly  desirable.  It  will  add  greatly  to  their 
attractiveness  to  investors  and  banking  in- 
stitutions. It  will  make  them  more  fluid — 
more  salable,  more  available,  more  popular. 

One  feature  of  the  bill  herewith  original 
with  the  author  is  such  a  guarantee  from 
Federal  Rural  Credits  Company  itself.  This 
will  put  back  of  every  debenture  issued,  in 
addition  to  all  the  security  represented 
thereby,  all  the  net  assets  of  that  great 
Company. 

Before  it  will  authorize  an  issue  of  de- 
bentures which  it  must  thus  guarantee 
principal  and  interest  without  reservation. 
Federal  Rural  Credits  Company  obviously 
will  use  meticulous  care  to  see  that  every 
detail  of  and  all  the  securities  for  such  an 
issue  are  A  1.  Thus  investors  will  be  still 
further  assured  of  the  reliability  in  every 
way  of  each  and  every  federal  debenture. 

However,  this  does  Not  Involve  any  de- 
benture bank  in  joint  and  several  liability. 
The  Washington  company  might  be  wiped 
out  of  existence,  if  such  a  thing  is  imagi- 
nable, without  necessarily  impairing   the 

74 


FEDERAL  DEBENTURE  BANKS 

financial  integrity  of  conservatively  man- 
aged debenture  banks. 

Such  a  guarantee  of  principal  and  inter- 
est also  works  out  as  a  further  inducement 
for  the  people  in  any  state  to  retire  prompt- 
ly the  federal  capital  in  their  debenture 
bank. 

This  plan  may  or  may  not  make  the  de- 
bentures of  every  bank  equally  salable  at 
equal  quotations  in  various  markets,  but  it 
will  promote  that  desirable  result. 

Some  of  the  Pending  Bills  would  enforce 
joint  and  several  liability  upon  all  deben- 
ture banks,  for  the  reason  that  the  same 
policy  is  applied  to  all  the  federal  land 
banks.  However,  there  is  a  material  differ- 
ence in  the  securities  and  hazards  of  the 
two  systems. 

The  federal  land  bank  has  to  do  only  with 
underlying  first  mortgage  bonds  to  an 
amount  that  averages  considerably  less 
than  50  per  cent  of  the  fair  value  of  the 
property.  Its  contracts  are  over  a  long  term 
of  years,  mostly  within  a  range  of  20  to  33 
years,  thus  still  further  minimizing  any 
possible  hazard. 

75 


RURAL  CREDITS  SYSTEM 

The  Rural  Credits  System,  on  the  con- 
trary, is  based  on  paper  running  from  six 
months  to  three  years,  or  upon  real  estate 
obligations  running  five  years  and  secured 
by  second  mortgages  on  federal  first  farms, 
or  on  first  mortgages  upon  the  real  estate 
owned,  occupied  and  used  by  co-operative 
associations. 

To  be  Made  Legal  Investment  for  Trust 
Funds,  at  least  within  the  State  in  which 
the  debenture  bank  is  located,  is  so  advan- 
tageous to  investors  within  the  state  as  well 
as  beneficial  to  borrowers  that  no  legisla- 
ture can  reasonably  object  to  this  policy.  In 
view  of  all  the  safeguards  to  both  principal 
and  income  of  federal  debentures,  they  cer- 
tainly are  entitled  to  the  recognition  of 
trust  funds. 

Probably,  too,  the  net  return  to  the  inves- 
tor on  these  debentures  will  average  some- 
what higher  than  upon  other  investments 
which  in  reality  are  no  better  secured  if  as 
well.  The  truth  of  this  statement  will  be 
appreciated  by  many  a  trustee  who  during 
1919-21  saw  well  seasoned  securities  of  the 
first  water  shrink  dangerously  in  value. 

76 


FEDERAL  DEBENTURE  BANKS 

The  Powers  of  a  Federal  Debenture  Bank 

are  so  specifically  defined  in  the  bill  as  to 
commend  themselves  to  the  sound  judg- 
ment of  statesmen  and  bankers,  economists 
and  financiers  as  well  as  of  the  general  pub- 
lic, including  farmers,  dealers  and  manu- 
facturers. All  these  details  of  the  bill  need 
only  to  be  read  with  discriminating  care  to 
carry  conviction. 

It  may  not  only  buy  government  securi- 
ties, federal  farm  loan  bonds  and  federal 
debentures,  but  the  bank  may  buy  or  sell 
agricultural  loans,  live  stock  paper,  com- 
modity paper  or  real  estate  mortgage  obli- 
gations. Upon  such  securities  and  or  cash, 
the  bank  may  issue  its  own  debentures,  but 
only  upon  a  conservative  margin  of  safety. 

The  Margins  Required,  as  described  in 
section  17  are  20  per  cent  for  agricultural 
loans,  15  per  cent  for  live  stock  paper,  10 
per  cent  for  commodity  paper  and  5  per 
cent  for  real  estate  obligations.  In  addition 
to  this  margin,  it  must  be  remembered  that 
all  such  paper  will  carry  the  indorsement  of 
the  co-operative  association   or  bank  by 

77 


RURAL  CREDITS  SYSTEM 

which  it  was  discounted  with  the  debenture 
bank. 

The  local  institutions  will  in  the  first  in- 
stance make  these  loans  of  the  four  classes 
proposed  only  with  an  adequately  safe  mar- 
gin. Furthermore,  the  paper  runs  for  only 
six  months  to  three  years,  when  it  must  be 
paid  off  in  full  or  be  heavily  reduced  before 
renewal. 

Therefore,  security  is  well  provided  for 
all  along  the  line  from  the  original  borrow- 
er to  the  final  investor. 

Other  provisions  of  the  bill  govern  and 
control  all  the  technical  details  pertaining 
to  the  debentures  so  as  to  deserve  the  confi- 
dence with  which  these  securities  will  be 
greeted  when  they  first  appear  on  the  mar- 
ket— a  confidence  that  is  as  certain  to  be 
strengthened  as  it  is  certain  that  people 
must  be  fed  in  order  to  live. 

The  Strict  Limit  of  the  amount  of  deben- 
tures which  may  be  issued  by  any  one  Fed- 
eral debenture  bank  is  a  further  safeguard 
to  the  investor.  No  such  bank  may  issue 
debentures  in  excess  of  ten  times  the 
amount  of  its  capital  and  surplus. 

78 


FEDERAL  DEBENTURE  BANKS 

The  security  it  may  accept  for  such  de- 
bentures is  not  only  carefully  prescribed 
and  a  generous  margin  thereon  required, 
but  paragraph  4  of  section  13  also  limits  the 
amount  of  the  securities  which  the  bank 
may  accept  from  any  number. 

Far  be  It  from  Me  to  assume  that  my  pro- 
posals for  these  debenture  banks  are  in 
every  way  perfect,  but  I  consider  these 
banks  absolutely  essential  to  the  system  de- 
sired. 

Co-operative  associations,  live  stock  loan 
companies  and  local  banks — state,  national 
or  federal — are  the  foundation  stones,  de- 
benture banks  are  the  superstructure,  while 
the  keystone  to  the  arch  of  rural  credits  is 
the  Federal  Rural  Credits  Company,  all 
closely  supervised  by  Federal  Rural  Credits 
Board. 

Objection  May  Be  Made  to  the  state  as 
such  investing  its  funds  in  the  debenture 
bank  even  of  its  own  state.  But  it  will  be 
seen  that  such  a  bank  is  a  quasi  public  in- 
stitution. And  every  dollar  invested  by  the 
state  in  its  debentures  will   be    expended 

79 


RURAL  CREDITS  SYSTEM 

wholly  within  the  state  to  build  up  its  agri- 
cultural and  related  industries. 

Yet  the  state  is  not  asked  to  assume  any 
risk  by  investing  in  the  capital  of  a  deben- 
ture bank.  This  point  is  made  very  clear 
in  the  paragraphs  above  emphasizing  the 
advantage  the  state  gets  in  buying  deben- 
tures instead  of  shares. 

Another  purpose  of  specifying  such  an 
advantage,  was  to  overcome  all  the  objec- 
tions, on  the  grounds  of  selfishness,  expedi- 
ency or  constitutionality,  to  the  state  invest- 
ment of  funds  in  debentures. 

Stronger  reasons  and  better  arguments 
can  be  advanced  for  such  an  investment  of 
funds  by  the  state  than  for  many  of  the 
things  in  which  a  state's  monies  are  in- 
vested or  for  which  the  state's  income  is  ex- 
pended. A  few  years  ago,  Minnesota  was 
investing  its  surplus  in  the  low  rate  bonds  of 
Louisiana,  while  Minnesota  farmers  were 
put  to  it  to  get  high  rate  mortgage  money! 

It  may  be  unconstitutional  in  certain 
states  for  the  state  treasurer  to  make  such 
an  investment.  Of  this  there  is  grave  doubt, 
however.     In  one  or  two  cases  where  the 

80 


FEDERAL  DEBENTURE  BANKS 

point  has  been  raised,  a  careful  weighing 
of  the  provisions  of  the  state's  constitution 
seems  to  indicate  that  only  an  act  of  the 
Legislature  would  be  required  to  enable 
and  authorize  state  funds  to  be  invested 
in  the  debentures  of  the  federal  debenture 
bank  for  that  state. 

Should  it  be  Determined  that  an  amend- 
ment is  necessary  to  any  state  constitution 
to  warrant  such  action  in  almost  any  such 
state  the  necessary  majority  of  the  electo- 
rate could  be  depended  upon  to  authorize 
an  amendment  of  this  character. 

The  importance  of  state  co-operation 
along  the  lines  indicated  is  so  great  as  to 
justify  all  reasonable  efforts  to  bring  it 
about.  All  the  more  true  is  this  by  the 
method  proposed  wherein  the  members  of 
each  debenture  bank  eventually  will  own  it 
outright  after  having  replaced  all  of  the  ini- 
tial capital. 

It  has  been  suggested,  however,  that  pos- 
sibly a  clause  might  be  inserted  in  the  bill 
to  provide  that,  if  the  constitution  of  any 
state  made  its  direct  co-operation  imprac- 

81 


RURAL  CREDITS  SYSTEM 

ticable,  the  debentures  first  issued  to  an 
amount  equal  to  the  initial  capital  might  be 
underwritten  or  subscribed  for  by  persons 
or  corporations  within  the  state.  Where 
there's  a  will,  a  way  can  be  found  out  of 
this  difficulty  should  it  arise. 

Real  Estate  Obligations  deserve  special 
discussion,  because  of  certain  prejudices 
that  exist  in  financial  minds,  also  on  the 
part  of  the  public,  against  even  first  mort- 
gages on  certain  forms  of  business  real  es- 
tate, still  more  so  against  second  mort- 
gages on  farms. 

Here  again  the  inadequacy  of  previous 
methods  of  financing  such  real  estate  obli- 
gations, plus  the  machinations  of  middle- 
men, have  operated  unfairly  to  the  detri- 
ment of  this  form  of  security. 

I  maintain  that  under  the  methods  to  be 
perfected  by  the  Rural  Credits  System,  a 
debenture  bank  may  loan  a  conservative 
amount  against  a  first  mortgage  on  real  es- 
tate for  the  agricultural  business  or  agri- 
cultural purposes  of  incorporated  co-opera- 
tive associations.  Especially  will  this  be 
true  since  no  such  mortgage  may  be  for  a 

82 


FEDERAL  DEBENTURE  BANKS 

longer  term  than  five  years,  nor  for  more 
than  $20,000,  nor  in  excess  of  50  per  cent  of 
the  bank's  own  appraisal,  and  the  bank  is  to 
hold  5  per  cent  of  its  face  amount  as  a  re- 
serve against  the  loan. 

These  loans  will  be  made  only  on  property 
like  elevators,  creameries,  warehouses  on 
track  and  similar  facilities,  always  useful 
for  commercial  purposes  and  for  those  deal- 
ing in  the  necessities  of  life.  The  properties 
will  be  scattered,  the  risk  small,  insurance 
in  excess  of  the  loans.  In  practice,  borrow- 
ers will  be  obliged  gradually  to  reduce  their 
loans  instead  of  carrying  them  in  full  to  the 
five-year  maturity. 

Farm  Mortgages  Second  to  a  federal  first 
also  possess  a  basic  value  greater  than  here- 
tofore has  been  recognized  generally.  The 
amount  that  any  federal  land  bank  will  lend 
on  a  farm  owned,  occupied  and  worked  by 
the  borower  averages  probably  less  than  40 
per  cent  of  what  the  farm  would  ordinarily 
sell  for  under  reasonably  norm.al  condi- 
tions. The  burden  of  interest  is  light,  and 
experience  now  for  some  years,  including 
the  period  of  the  most  terrible  collapse  in 

83 


RURAL  CREDITS  SYSTEM 

values  in  American  agriculture,  prove  that 
the  amount  of  arrearages  of  interest  is  al- 
most negligible. 

Furthermore,  the  borrower  must  reduce 
the  principal  of  his  obligation  by  about  one- 
half  of  1  per  cent  every  six  months,  thus 
steadily  increasing  the  equity  against  the 
loan. 

For  these  reasons  the  likelihood  of  fail- 
ure or  foreclosure  of  a  first  mortgage  held 
by  a  federal  land  bank  is  extremely  remote. 

Consequently  it  is  true  that  a  mortgage 
second  to  such  a  federal  first  may  be  quite 
as  good  as  the  ordinary  first  mortgage  here- 
tofore, with  its  relatively  onerous  terms 
and  comparatively  large  amount. 

Provided  such  second  mortgage  does  not 
exceed  25  per  cent  of  the  federal  land  bank's 
appraisal  valuation  and  10  per  cent  thereof 
is  held  by  the  debenture  bank  as  a  reserve 
against  it,  a  reasonable  number  of  these 
second  mortgages  will  form  good  stuff  for 
any  debenture  bank  to  own,  the  more  so  as 
it  is  provided  that  no  such  second  mortgage 
may  exceed  $5,000  in  amount,  and  the  in- 

84 


I 


FEDERAL  DEBENTURE  BANKS 

terest  rate  thereon  obviously  will  be  rather 
attractive. 

In  practice,  also,  borrowers  on  seconds 
will  be  able  as  well  as  required  gradually  to 
reduce  their  loans,  thus  further  insuring 
the  equity. 

These  first  and  second  mortgages  with 
not  over  five  years  to  run  are  collateral  for 
the  five-year  debentures.  My  knowledge  of 
agriculture  and  my  judgment  as  to  farm 
finance  over  a  period  of  many  years,  con- 
vinces me  that  long  before  the  proposed 
Rural  Credit  System  is  ten  years  old,  its 
five-year  debentures  secured  by  these  real 
estate  obligations  may  command  as  good  or 
better  markets  than  shorter  term  rural 
credit  instruments. 


85 


CHAPTER  SIX 

COOPERATIVE  ASSOCIATIONS 

HILE  the  American  farmer  is  ex- 
tremely individualistic  and  inde- 
pendent, stern  necessity  of  late 
years  has  forced  him  to  realize  the  power 
of  associated  effort.  The  success  of  the  co- 
operative local  units  of  the  Federal  Farm 
Loan  System  (national  farm  loan  associa- 
tions) and  the  substantial  development  of 
co-operative  marketing  among  farmers, 
make  them  today  more  ready  than  ever  for 
united  effort. 

The  Fear  of  Joint  Liability  has  kept 
many  farmers  from  co-operating  with  their 
neighbors.  ''While  relatively  few  farmers 
heretofore  have  kept  books  of  account, 
nearly  all  farmers  know  at  all  times  about 
where  they  stand  financially.,  This  is  one 
reason  why  they  shun  everything  in  the  na- 
ture of  several  and  joint  obligation  for  the 
debts  of  others.  So  many  farmers  have  suf- 
fered  loss   by  personal   endorsement    of 

86 


CO-OPERATIVE  ASSOCIATIONS 

others'  paper,  or  by  becoming  personally 
responsible  for  the  obligations  of  unincor- 
porated effort,  that  now  thej^  dread  any- 
thing of  the  kind,  just  as  a  burned  child 
dreads  the  fire." 

Another  Reason  for  this  conviction  is  the 
farmer's  high  sense  of  financial  responsi- 
bility. In  banker's  parlance,  he  may  be 
slow,  but  almost  inevitably  the  farmer  is 
good  for  anything  he  contracts  for.  Indeed, 
this  is  one  secret  of  the  present  vast  and 
constantly  increasing  agricultural  trade. 
Because  the  responsible  farmer  has  such  a 
high  sense  of  personal  and  financial  inte- 
grity, is  another  reason  why  he  is  loath  to 
incur  anything  in  the  nature  of  unlimited 
liability. 

Many  a  farmer  has  joined  with  his  neigh- 
bors in  informal  effort  at  buying  together 
or  selling  together,  only  to  find  that  some 
one  member  or  a  very  few  irresponsibles 
fail  to  carry  their  share,  which  he  pays  as 
a  moral  debt,  though  he  has  no  legal  obliga- 
tion to  do  so. 

This  speaks  well  for  the  credit  of  the  re- 

87 


RURAL  CREDITS  SYSTEM 

sponsible  farmer  at  the  same  time  that  it 
suggests  business  efficiency  in  dealing  with 
the  relatively  few  irresponsibles,  and  en- 
forces the  need  of  practical  means  of  help- 
ing farmers  to  help  themselves. 

Brilliant  Success  has  been  achieved,  on 
the  other  hand,  by  farmers'  co-operative 
marketing  associations,  farmers'  elevators, 
co-operative  creameries,  mutual  fire  insur- 
ance companies,  livestock  shipping  associa- 
tions and  other  co-operative  enterprises  in 
which  each  member's  liability  is  strictly 
limited  yet  which  enjoy  all  the  benefits  of 
associated  effort  through  efficient  manage- 
ment. 

When  farmers  join  a  Federal  incorpor- 
ation they  know  that  their  liability  is 
strictly  limited  to  twice  the  amount  of 
money  they  pay  for  their  shares.  Each  and 
all  know  that  every  member  has  paid  in  his 
money  on  the  same  basis.  They  realize  that 
the  success  of  such  an  incorporated  corpor- 
ation upon  the  co-operative  plan  depends 
upon  the  extent  to  which  it  is  patronized 
by  its  members,  as  well  as  upon  the  busi- 
ness ability  with  which  it  is  conducted. 

88 


CO-OPERATIVE  ASSOCIATIONS 

Recognition  of  These  Essentials  inspires 
■  the  confidence  that  breeds  success.  By  start- 
ing on  this  basis  and  adhering  to  it,  any 
form  of  associated  effort  rests  on  a  firm 
foundation,  for  it  cannot  be  reiterated  too 
often  that  co-operation  is  *'not  a  new  plan 
of  transacting  business,  but  rather  a  differ- 
ent method  of  dividing  the  fruits  of  indus- 
try. The  same  principles  that  govern  busi- 
ness success  in  acquiring  profit  on  capital,'* 
apply  to  the  acquirement  of  savings  to  co- 
operating creditors  and  to  the  insurance  of 
fair  returns  to  investors  in  federal  deben- 
tures. 

Industry,  application,  perseverance,  good 
judgment,  expert  knowledge,  sound  admin- 
istration, economy,  honesty,  wise  choice  of 
risks,  insistence  upon  regular  payments, 
enforcement  of  contracts,  all  are  as  much 
required  in  the  cooperatives  to  be  chartered 
under  the  Federal  Rural  Credits  act,  as  they 
are  needed  for  the  successful  conduct  of 
each  national  and  state  bank  which  is  under 
the  federal  reserve  system. 

The  Individual  Farmer  is  quick  to  recog- 
nize these  truths.    That  is  why  the  bill  sub- 

89 


RURAL  CREDITS  SYSTEM 

mitted  strictly  limits  the  farmer's  liability 
in  any  federal  incorporated  co-operative 
agricultural  association,  or  in  a  federal  co- 
operative bank,  to  double  the  amount  of 
the  par  value  of  his  shares  therein,  as 
always  has  been  the  case  with  national 
banks. 

Thus  to  Double  the  Backing  of  such  an 
institution  adds  much  to  its  strength  while 
strictly  and  safely  limiting  each  member's 
liability. 

Any  farmers'  paper  accepted  for  redis- 
count by  such  an  association  or  by  any  bank 
may  be  depended  upon  to  be  relatively 
**good."  The  indorsement  thereon  of  the 
local  institution  that  rediscounts  it,  is 
backed  up  by  the  assets  thereof  and  by 
double  the  responsibility  of  all  its  members. 

Add  to  this  the  collateral  which  accom- 
panies such  paper,  and  it  will  be  seen  at 
once  why  the  debentures  issued  upon  such 
security  are  certain  to  be  popular  for  the 
investment  of  funds  over  periods  of  from 
six  months  to  three  or  five  years,  especially 
as  the  same  are  amply  margined  under  Sec- 
tion 17. 

90 


CO-OPERATIVE  ASSOCIATIONS 

Because  the  new  system  is  to  be  thus 
firmly  and  fully  backed  up  by  the  confi- 
dence, co-operation  and  collateral  of  the 
individual  farmer,  as  well  as  of  his  co-oper- 
ative enterprises,  it  will  be  seen  that  the 
method  outlined  in  the  proposed  bill  is  in- 
sured prompt  and  permanent  success. 

Co-operative  Associations.  Next  to  the 
individual  farmer,  the  Rural  Credits  Sys- 
tem proposed  is  based  fundamentally  upon 
local  units  composed  of  five  or  more  farm 
producers.  The  Act  (Section  23)  requires 
them  to  operate  upon  the  co-operative  prin- 
ciple, by  which  is  meant — to  quote  the  pre- 
cise definition  in  Section  1 — ''co-owner- 
ship and  operation  in  which  each  member 
has  only  one  vote  regardless  of  his  share 
holdings  and  capital  is  limited  to  reason- 
able interest,  profits  in  excess  thereof  being 
apportionable  in  dividends  among  those 
who  create  the  profit." 

Such  a  group  may  obtain  a  federal  char- 
ter, but  if  incorporated  under  state  law  may 
also  share  in  the  benefits  of  the  new  system. 
In  common  language,  it  will  be    called    a 

91 


RURAL  CREDITS  SYSTEM 

"local  association,"  or  still  more  briefly,  a 
"local  co-op." 

It  May  Be  Conducted  for  "agricultural 
purposes,"  defined  as  including  "the  culti- 
vation of  lands,  planting,  harvest,  assem- 
bling, grading,  distribution  and  marketing 
of  crops,  and  the  purchase,  breeding,  feed- 
ing and  marketing  of  live  stock." 

Also  it  may  operate  "agricultural  busi- 
ness," which  the  bill  defines  as  including 
"the  ownership  and  operation  of  real  es- 
tate and  commodities  required  for  agricul- 
tural purposes,  including  plants  co-opera- 
tively owned  by  producers  for  the  manufac- 
ture or  preparation  for  market  of  dairy 
products  and  other  agricultural  products, 
and  as  further  defined  in  paragraph  7  of 
section  1. 

Each  Share  Has  a  Par  Value  of  five  dol- 
lars, and  each  member  has  only  one  vote 
regardless  of  the  number  of  shares  owned. 
Shareholders  shall  be  held  individually  re- 
sponsible for  all  contracts,  debts  and  en- 
gagements of  such  association,  each  to  the 
amount  of  his  stock  therein  at  the  par  value 

92 


CO-OPERATIVE  ASSOCIATIONS 

thereof  in  addition  to  the  amount  invested 
in  such  stock. 

In  other  words,  a  member's  liability  is 
strictly  confined  to  twice  his  investment  in 
the  shares,  the  same  as  has  always  been  true 
of  stock  in  national  banks. 

Its  Powers.  If  created  under  the  pro- 
posed Act,  a  federal  co-operative  agricul- 
tural association  must  become  a  member  of 
the  Federal  Debenture  bank  for  its  state,  as 
specified  in  Paragraph  24  of  Section  8  of 
the  bill. 

In  addition  to  its  other  functions,  the 
local  co-op  is  authorized  ''to  purchase,  sell, 
discount,  issue  and  to  negotiate  live  stock 
paper,  agricultural  loans,  commodity  paper 
and  real  estate  obligations  as  defined  by 
this  Act,  or  federal  farm  loan  bonds  or 
United  States  bonds  and  United  States  cer- 
tificates of  indebtedness".  It  may  rediscount 
such  paper  with  its  Federal  Debenture 
Bank,  and  under  certain  circumstances  such 
paper  with  its  indorsement  acquired  by  any 
national  or  state  bank  may  be  rediscounted 
with  the  Federal  Reserve. 

However,  the  privileges  of  such  paper  in 

93 


RURAL  CREDITS  SYSTEM 

the  federal  reserve  are  carefully  safeguard- 
ed as  described  in  Chapter  Nine  of  this 
book  and  in  Title  III  of  the  bill  so  as  to 
guard  against  pumping  into  the  Federal  Re- 
serve System  any  material  quantity  of 
paper  having  a  maturity  in  excess  of  six  or 
twelve  months. 

How  Organized.  The  blank  form  to  be 
signed  by  farmers  who  wished  to  form  a 
Federal  co-operative  agricultural  associa- 
tion probably  will  be  obtainable  from  the 
Federal  Debenture  bank  of  its  state  or  from 
Federal  Rural  Credits  Board  at  Washing- 
ton, D.  C. 

The  only  limit  to  the  number  of  farmers 
who  may  apply  for  a  charter  is  that  they 
shall  be  not  less  than  five.  Other  things 
being  equal,  the  larger  the  number  of  farm- 
ers who  join  in  making  the  application,  the 
better. 

When  the  application  has  been  approved 
by  Federal  Rural  Credits  Board,  it  will 
issue  a  charter  to  the  local,  and  the  latter 
may  then  proceed  with  its  business,  subject 
to  rules  and  regulations  made  by  said 
Board. 

94 


CO-OPERATIVE  ASSOCIATIONS 

The  Capital  Required  to  start  with  is  not 
less  than  $1000  paid  up  in  cash.  This  cap- 
ital may  be  increased  as  the  business  de- 
velops. 

There  is  nothing  to  prevent  the  local 
from  borrowing  additional  funds  wherever 
it  may  obtain  the  same.  If  the  co-op  is 
doing  only  a  little  business,  a  little  capital 
will  suffice.  If  it  needs  $10,000,  or  $100,- 
000  of  permanent  capital  to  successfully 
conduct  its  operations,  it  is  free  to  increase 
to  any  extent  required. 

No  Charge  May  Be  Made  by  the  local  to 
any  member  for  a  loan  or  any  form  of  fi- 
nancial accommodation  in  excess  of  the 
rates  and  amounts  prescribed  by  Federal 
Rural  Credits  Board. 

The  bill  provides  most  stringent  penal- 
ties for  any  infraction  of  this  rule. 

Throughout  the  bill  every  possible  means 
are  provided  to  insure  individuals  and  in- 
stitutions within  the  System  from  having  to 
pay  any  form  of  undue,  unfair,  unearned  or 
illegal  fee,  bonus,  commission  or  perquisite. 
It  is  proposed  to  forestall  and  cut  out  the 

95 


RURAL  CREDITS  SYSTEM 

whole  scheme  of  graft  to  which  farmer  bor- 
rowers for  years  have  been  subjected.  All 
such  forms  of  plucking  must  stop. 

No  Limitation  is  imposed  upon  the  terri- 
tory with  which  a  co-op  incorporated  under 
the  Act  may  do  business.  There  is  nothing 
to  prevent  two  or  more  groups  being  char- 
tered in  the  same  locality  or  region.  No  re- 
striction or  combination  is  possible  in  the 
nature  of  a  trust  for  the  restraint  of  trade  in 
either  buying  or  selling. 

The  Honor  of  Serving  upon  the  director- 
ate of  a  co-operative  association  has  come 
to  be  highly  esteemed.  This  honor  will  be 
all  the  greater  in  a  co-op  chartered  under 
the  proposed  federal  statute. 

It  is  expected  that  no  salary  or  perquisite 
of  any  kind  shall  be  paid  to  any  of  the  di- 
rectors or  committees,  except  to  such  as  of- 
ficers and  employees  as  devote  practically 
their  entire  time  to  the  work. 

The  proposed  system,  therefore,  is  based 
upon  patriotic  voluntary  service  by  those 
whom  the  members  honor  by  election  to 
the  directorate.     This  principle  of  volun- 

96 


CO-OPERATIVE  ASSOCIATIONS 

tary  service  in  return  for  distinction  be- 
stowed, is  the  principle  upon  which  has 
been  developed  during  the  past  200  years 
the  purely  mutual  savings  banks  that  have 
done  so  much  to  promote  thrift  and  pros- 
perity throughout  New  England. 

The  same  principle  has  been  employed 
by  the  local  co-operative  building  and  loan 
associations,  thousands  of  which  are  being 
conducted  successfully  and  at  minimum 
cost  by  wage  earners.  Other  forms  of  asso- 
ciated effort  in  economic  affairs,  as  in  social 
and  religious  affairs,  have  long  demon- 
strated the  high  character  of  ability  that  is 
ready  to  give  voluntary  service. 

The  Local  Must  Report  Annually  to  Fed- 
eral Rural  Credits  Board.  It  is  subject  to 
audit  by  the  Board's  examiner. 

In  various  ways  its  operations  are  safe- 
guarded. Failure  ''to  comply  with  the  just 
and  legal  orders,  rules  and  regulations  of 
the  Board,  or  failure  to  meet  its  obligations, 
shall  warrant  the  Board  in  withdrawing 
and  forfeiting  its  charter,"  whereupon  it 
shall  liquidate  forthwith. 

97 


RURAL  CREDITS  SYSTEM 

In  practical  operation  the  audits  and  ex- 
aminations of  the  locals  probably  will  be 
under  the  supervision  of  the  Debenture 
bank  of  which  the  local  is  a  member. 


98 


CHAPTER  SEVEN 
MISCELLANEOUS  FEATURES 

MANY  OTHER   FEATURES   of   this 
subject  in  addition  to    those     else- 
where covered  in  this  book,  remain 
to  be  considered.    No   attempt  has    been 
made  to  treat  exhaustively  each  of  the  man- 
ifold details,  of  this  great  proposition. 

Enough  has  been  presented,  however,  to- 
gether with  the  quite  complete  draft  of  the 
proposed  bill,  to  afford  some  insight  into 
the  subject.  The  present  chapter  treats  of 
various  matters  not  elsewhere  fully  touched 
upon. 

The  Attractive  Investment  for  saving  and 
other  funds,  for  a  period  of  from  six  months 
to  three  or  five  years,  offered  by  Federal  de- 
bentures, is  a  profoundly  important  feature 
of  the  system.  In  every  state,  in  every  com- 
munity, are  individuals,  trustees  or  institu- 
tions which  always  have  more  or  less  funds 
for  investment.    They  may  not  want  to  tie 

99 


RURAL  CREDITS  SYSTEM 

Up  this  money  in  permanent  investments 
like  the  Liberty  bonds,  federal  farm  loan 
bonds,  municipals,  or  long  term  securities. 
On  the  other  hand,  these  people  do  not 
want  to  buy  commercial  paper  or  accep- 
tances coming  due  in  thirty,  sixty  or  ninety 
days.  They  are  not  in  the  banking  business 
and  do  not  want  to  get  into  it. 

But  they  would  gladly  buy  Federal  de- 
bentures, especially  as  this  paper  could  be 
bought  with  maturities  in  from  six  months 
to  three  or  five  years  to  meet  the  views  of 
any  investor.  These  debentures  could  be 
bought  and  sold  at  every  existing  bank  as 
well  as  through  all  brokers,  agents  and 
other  market  channels. 

Objections  May  be  Made  by  the  bankers 
who  would  prefer  to  have  these  people 
keep  their  money  on  deposit  instead  of  in- 
vesting it.  But  in  practice,  banks  and 
bankers  would  not  lose  much  of  any  de- 
posits in  this  way. 

The  money  thus  invested  in  debentures 
would  simply  pass  into  the  hands  of  bor- 
rowers, who  would  use  it  in  their  business 
or  to  pay  their  debts.    The  money  would 

100 


MISCELLANEOUS  FEATURES 

stay  in  the  community.  Its  presence  and  its 
activity  would  fructify  all  lines  of  business, 
including  agriculture  and  the  farm  trade. 
Such  increase  in  business  prosperity  would 
be  reflected  in  larger  deposits  in  national 
or  state  banks  and  trust  companies. 

This  Change  gradually  would  come 
about :  More  cash  and  credits  would  be  re- 
tained and  employed  in  each  rural  commu- 
nity, instead  of  being  drained  away  to  the 
larger  centers.  Country  banks  would  not 
have  to  send  their  temporarily  idle  funds  to 
their  correspondent  bank  in  the  reserve 
cities,  for  the  purpose  of  saving  loss  of  in- 
terest until  it  could  be  used  at  home.  Nor 
would  country  banks  be  forced  to  invest  so 
much  of  their  funds  in  the  commercial 
paper  of  large  industrial  and  railroad  en- 
terprises that  center  in  the  great  cities. 

Both  such  uses  for  current  funds  would 
continue  to  be  employed  by  country  and 
city  banks,  but  not  necessarily  as  largely  as 
heretofore.  Federal  debentures  running 
off  at  convenient  dates,  month  after  month, 
would  be  attractive  paper  in  any  bank's 
portfolio.     The  more  that  funds  could  thus 

101 


RURAL  CREDITS  SYSTEM 

be  retained  in  the  community,  the  better 
would  be  the  business  of  any  and  all  com- 
mercial banks. 

Thus  to  Keep  Money  at  Home,  by  educat- 
ing and  encouraging  the  people  in  each 
locality  to  invest  their  savings  and  current 
funds  at  least  temporarily  in  Federal  de- 
bentures secured  by  local  paper,  means  an 
aggregate  of  millions  saved  and  applied  to 
productive  industry  in  local  communities 
which  otherwise  may  be  wasted  or  frittered 
away. 

All  this  means  better  business  in  every 
line  of  industry,  and  especially  among 
banks  and  bankers,  throughout  rural  com- 
munities and  in  towns  and  cities. 

The  Division  of  Earnings  of  the  system 
is  carefully  provided  for  in  section  20.  All 
earnings  of  Federal  Rural  Credits  Com- 
pany, after  it  has  acquired  a  surplus  of  50  % 
of  its  capital,  go  to  the  United  States  as 
franchise  tax. 

In  view  of  the  experience  of  the  Federal 
Reserve  System,  and  in  spite  of  the 
insurance    against    excessive    rates    and 

102 


MISCELLANEOUS  FEATURES 

charges  in  the  proposed  bill,  it  is  doubtless 
true  that  these  earnings  will  be  extremely 
satisfactory  from  the  standpoint  of  reve- 
nue to  the  tjnited  States  Treasury. 

Yet  the  benefits  conferred  by  the  System 
amply  warrant  it  in  paying  rates  and 
charges  which  may  net  the  Treasury  a  lu- 
crative franchise  tax. 

As  the  money  invested  by  Federal  Rural 
Credits  Company  in  shares  of  the  deben- 
ture banks  is  not  entitled  to  dividend,  it  is 
all  the  fairer,  simpler  and  more  expedient 
that  all  the  net  earnings  of  that  parent  of 
the  System  shall  accrue  to  the  government 
as  a  franchise  tax. 

On  the  Other  Hand,  this  plan  goes  far  to 
insure  that  the  member  capital  invested  in 
the  shares  of  each  Federal  Debenture  Bank 
shall  receive  6%,  cumulatively.  Thereafter 
the  bank's  earnings  go  into  its  surplus  until 
that  fund  reaches  25%  of  its  capital,  when 
it  may  pay  an  extra  dividend  of  2%  per  an- 
num. Excess  earnings  then  go  to  surplus 
until  it  amounts  to  50%. 

Then  remaining  profits  of  each  debenture 
bank  must  be  used  to  buy  back  and  retire  at 

103 


RURAL  CREDITS  SYSTEM 


par  the  shares  subscribed  for  in  the  first 
instance  by  Federal  Rural  Credits  Com- 
pany. Here  again  it  is  conservative  to  be- 
lieve that  earnings,  plus  new  member  cap- 
ital, will  enable  the  debenture  banks  thus 
to  pay  back  within  a  reasonable  time  all  the 
initial  capital  that  was  advanced  by  Wash- 
ington. 

Thereupon  the  balance  of  each  bank's  ex- 
tra earnings  all  goes  to  the  United  States  as 
a  franchise  tax.  It  is  believed  that  the  rev- 
enue which  the  government  will  obtain 
from  this  source  may  total  even  more  than 
its  prospectively  large  income  from  the  net 
earnings  of  Federal  Rural  Credits  Com- 
pany. 

It  will  be  seen  that  the  new  system  recog- 
nizes the  wages  of  capital  to  be  an  expense, 
second  only  to  the  wages  of  labor  and  of 
other  expenses.  After  capital  is  paid  the 
reasonable  returns  permitted,  the  govern- 
ment receives  as  a  franchise  tax  the  entire 
earnings  of  the  national  and  state  phases 
of  the  rural  credits  system. 


Building-Loan    Associations. 

104 


Just  the 


MISCELLANEOUS  FEATURES 

difference  between  being  an  owner,  or  a 
tenant  or  hired  man,  may  be  governed  by 
the  extent  to  which  such  people  take  advan- 
tage of  the  facilities  for  cashing  farm  mort- 
gages second  to  federal  first  mortgages 
which  my  bill  affords.  But  why  should  it 
be  extended  to  farmers  and  not  to  other 
people? 

Partly  because  nearly  every  wage  earn- 
ing or  salary  earning  person  can  enjoy  the 
privileges  already  long  established  where- 
by he  may  with  relative  ease  and  conven- 
ience acquire  the  ownership  of  a  home  of 
his  own.  The  local  co-operative  building 
and  loan  association  is  the  most  perfect  in- 
stitution for  this  purpose  ever  devised.  The 
great  number  of  these  local  co-ops,  the  vast 
aggregate  of  their  thousands  of  loans,  and 
the  extent  to  which  large  numbers  of  people 
already  have  acquired  or  are  now  paying 
for  homes  of  their  own,  is  a  record  as  hon- 
orable as  it  is  gratifying. 

This  form  of  self-help,  however,  calls  for 
monthly  payments  by  its  member  borrow- 
ers.   Hence  it  is  not  adapted  to  farmers, 

105 


RURAL  CREDITS  SYSTEM 

whose  income  is  spasmodic  or  seasonal  rath- 
er than  coming  at  regular  intervals. 

Fake  Competitors — So  pronounced  has 
been  the  success  of  the  genuine  co-operative 
building  and  loan  associations,  that  certain 
spurious  or  speculative  types  of  competi- 
tion have  developed. 

One  such  type  is  the  notorious  install- 
ment-deposit-loan concern,  which  obtains 
depositors  by  specious  promises  of  big  loans 
at  nominal  rates.  The  history  of  this  type 
shows  it  to  be  founded  upon  a  delusion  and 
a  snare.  Being  based  primarily  upon  the 
lottery  principle,  it  garners  in  its  victims  by 
loans  to  those  who  draw  early  or  lucky  num- 
bers (dates),  while  the  chances  of  the  late 
comers  obtaining  loans  become  more  and 
more  remote,  according  as  their  numbers 
or  dates  are  belated.  The  whole  history 
of  these  fakes  is  such  a  record  of  disastrous 
failure  that  it  is  surprising  that  such 
schemes  should  still  be  permitted  anywhere 
within  the  United  States. 


Veterans  Are  Recognized    by   two    out- 
standing provisions. 

106 


MISCELLANEOUS  FEATURES 

In  the  first  place,  all  the  charges  cus- 
tomarily authorized  to  be  collected  by 
banks,  associations  or  others  under  the  Act 
for  services  performed,  are  not  to  be  im- 
posed in  the  case  of  a  veteran.  The  only  ex- 
ception to  this  is  such  registration  fees  and 
the  like  as  are  required  by  existing  law. 

Furthermore,  the  definition  of  the  term 
"veterans"  is  sufficiently  broad  to  cover  all 
those  who  have  honorably  served  their 
country  in  or  since  the  Spanish  war  of  1898, 
including  specifically  women  in  service  as 
nurses  or  otherwise. 

Another  proviso  in  the  special  interest  of 
veterans  is  the  proposed  amendment  to  the 
Farm  Loan  Act,  extending  its  privileges  to 
veterans  whose  farms  are  as  small  as  one 
acre  in  extent.  Under  the  farm  loan  sys- 
tem, the  census  basis  of  three  acres  as  the 
minimum  for  a  farm  is  recognized  in 
theory,  but  in  practice  first  mortgages  are 
seldom  placed  through  any  federal  land 
bank  upon  a  farm  smaller  than  10  acres  in 
size. 

I  feel  that  this  proposed  amendment  may 
enable  veterans  to  acquire  little  farms  of 

107 


RURAL  CREDITS  SYSTEM 

their  own,  by  means  of  federal  first  mort- 
gages supplemented  by  second  mortgages 
financed  through  debenture  banks. 

And  all  the  institutions  and  individuals 
concerned  or  employed  in  financing  such 
veterans'  realty  loans  should  perform  such 
service  "free  gratis  for  nothing,"  and  glad- 
ly, too. 

The  cold  truth,  however,  is  that  many  a 
service  man,  instead  of  being  helped  by 
lenders,  agents,  brokers  and  even  banks,  at 
times  has  been  unmercifully  plucked  or  oth- 
erwise imposed  upon  when  he  attempted  to 
get  a  little  farm  or  home  of  his  own.  Put  it 
right  into  the  law  that  our  veterans  shall 
have  this  service  performed  without 
charge,  so  far  as  this  may  be  done  legally ! 
Of  course,  regulations  will  be  framed  to  ob- 
viate any  abuses  that  possibly  might  be 
practiced  under  this  proviso. 


Women  Are  Showing  exceptional  ability 
in  financial  matters  and  in  the  administra- 
tion of  practical  business.  Hence  the  bill 
specifically  provides  that  nothing  therein 

108 


MISCELLANEOUS  FEATURES 

shall  be  held  to  debar  women  from  any  of- 
fice or  position  named  therein. 

It  is  altogether  true  that  much  of  the  suc- 
cess achieved  by  men  often  is  due  directly 
or  indirectly  to  the  guidance,  encourage- 
ment or  judgment  of  wife,  mother  or  sister. 
In  agriculture,  especially,  the  wife  often 
has  more  business  acumen  than  the  hus- 
band. 


As  to  the  Taxation  of  securities  issued 
under  the  proposed  Rural  Credits  System, 
much  can  be  said. 

For  thirty  years  the  author  labored  to  es- 
tablish the  principle  that  notes  secured  by 
first  mortgages  on  farms,  or  the  bonds  or 
credit  instruments  issued  against  such  col- 
lateral to  an  amount  not  exceeding  the  tax- 
able value  of  the  property,  should  be  free  of 
all  tax  whatsoever  other  than  inheritance 
taxes.  This  for  the  reason  that  the  real  es- 
tate is  taxed  as  such  in  the  first  instance. 
Subsequently  to  again  tax  any  instrument 
representing  such  realty  is  double  taxation 
of  the  rankest  kind. 

109 


RURAL  CREDITS  SYSTEM 

This  viewpoint  has  been  sustained  by  the 
United  States  supreme  court  upholding  the 
constitutionality  of  the  non-taxable  fea- 
tures of  the  Federal  Farm  Loan  Act. 

Conditions  Are  Widely  Different,  how- 
ever, in  rural  credits.  Even  in  its  real  es- 
tate department,  the  new  system  deals  with 
first  mortgages  only  upon  the  business 
property  of  co-operatives.  Doubtless  the 
bulk  of  the  business  of  this  department  will 
be  in  second  mortgages  upon  farms  owned, 
occupied  and  worked  by  their  owners  whose 
first  mortgage  is  held  by  a  federal  land 
bank. 

In  the  latter  class,  many  of  the  loans  will 
be  for  an  amount  which,  together  with  the 
balance  outstanding  upon  the  first  mort- 
gage, may  even  exceed  the  taxable  value  of 
real  estate  mortgage.  And  surely  there  is 
no  possible  ground  upon  which  to  claim 
taxation  upon  that  portion  of  a  mortgage 
obligation  which  exceeds  the  taxable  value 
of  the  real  estate  held  as  security. 

On  the  other  hand,  co-operative  associa- 
tions will  be  competitors  of  other  persons 
in   commercial   business   whose   property, 

»  110 


MISCELLANEOUS  FEATURES 

goods  and  instruments  of  credit  are  subject 
to  taxation  according  to  the  laws  of  the 
state.  To  exempt  the  co-ops  and  to  tax 
their  competitors  certainly  would  be  unfair 
discrimination. 

No  such  favors  are  asked  by  the  co-oper- 
ative movement.  Its  demand  is  simply  for 
"a  fair  field  and  no  favors." 

Personal  Security  for  credit  instruments, 
whether  in  the  form  of  mortgages  on  chat- 
tels or  otherwise,  differs  still  more  widely 
from  the  real  estate  and  securities  of  the 
Federal  Farm  Loan  System.  Wherein  is 
the  justice  or  logic  of  exempting  from  taxa- 
tion such  rural  credit  instruments? 

The  General  Welfare  of  all  the  people,  in 
other  vocations  as  well  as  in  agriculture,  of 
course  is  subserved  by  any  fair  means 
which  relieves  agriculture  of  undue  bur- 
dens. A  strong  argument  also  may  be  ad- 
vanced for  encouraging  investment  in  rural 
credit  instruments  by  providing  that  such 
paper,  the  principal  of  which  does  not  ex- 
ceed in  the  aggregate  $5,000  "owned  by  one 
person,"  may  be  tax  exempt. 

Ill 


RURAL  CREDITS  SYSTEM 

In  view  of  all  the  foregoing,  and  of  the 
many  arguments,  pro  and  con,  upon  this  or 
other  phases  of  the  tax  problem,  the  bill 
submitted  adopts  the  phraseology  of  the 
Norbeck  measure.  This  also  seems  to  be  fa- 
vored by  some  of  the  farm  organizations 
which  have  taken  a  positive  stand  against 
any  form  of  tax  exemption.  S  3639  would 
exempt  rural  credit  securities  issued  prior 
to  July  20,  1925,  while  thereafter  subjecting 
them  to  income  and  property  tax.  Weigh 
the  footnote  in  connection  with  section  22. 


Live  Stock  Loan  Companies  are  not  to  be 

incorporated  under  the  proposed  federal 
Act.  Such  corporations  always  have  been 
under  state  law.  The  nature  of  the  busi- 
ness is  such  that  a  cattle  loan  company  nec- 
essarily must  be  circumscribed  in  the  area 
of  its  operations,  so  that  its  officers  may  be 
personally  familiar  with  each  security  of- 
fered as  well  as  with  each  borrower. 

Cattle  paper  has  won  enviable  confidence 
in  certain  financial  circles  because  these 
precautions,  and  the  character  of  the  men 
identified  with  such  paper — borrower,  lend- 

112 


MISCELLANEOUS  FEATURES 

er,  broker  and  discounter — have  been  such 
as  to  justify  that  confidence. 

A  mortgage  on  chattels  with  four  legs 
may  easily  stray  out  of  its  bailiwick.  I  re- 
call how,  as  a  boy  in  Colorado,  in  "the  good 
old  days  before  the  crime  of  73,"  my  father 
was  paying  4V2^^  a  month  in  advance  on  his 
chattel  mortgage.  The  rush  for  the  Black 
Hills  started  from  our  town.  When  I  urged 
my  father  to  join  the  rush  and  start  the 
first  paper  in  the  Black  Hills,  his  principal 
objection  was  that  his  property  was  mort- 
gaged and  could  not  be  moved  until  the 
debt  was  paid,  to  which  the  boy  replied  ex- 
citedly : 

"That's  nothin',  everybody  here's  mort- 
gaged. They  are  taking  their  mortgages 
with  'em.  The  sheriff  is  going  along,  too. 
He  says  the  mortgages  will  be  no  good  after 
we  get  our  stuff  over  the  line  into  Wyoming 
or  Dakota.  We  can  make  money  so  fast  in 
the  Black  Hills  that  we  can  pay  our  debts 
and  still  have  a  big  wad  to  the  good!" 

It  Is  Equally  True  Today  that  every 
proper  precaution  may  well  be  employed  to 
insure  the  security  of  cattle  paper.    Long 

113 


RURAL  CREDITS  SYSTEM 

and  stern  experience  emphasizes  this  truth. 
Every  cattle  man  and  western  banker  real- 
izes it  and  agrees  to  this  statement. 

Yet  in  spite  of  all  these  precautions  in- 
suring its  stability,  borrowers  on  live  stock 
too  often  have  had  to  pay  commissions,  in- 
terest or  discount  to  well  nigh  extortionate 
rates.  Yet  experience  shows  that,  one  year 
with  another,  or  over  a  series  of  years,  live 
stock  may  not  fluctuate  in  value  any  more 
than  grain  or  cotton,  or  stocks  and  bonds 
on  Wall  Street.  Every  wise  means  that 
tends  safely  to  facilitate  the  mobilization 
of  live  stock  as  a  basis  of  sound  credits,  has 
a  tendency  to  improve  the  standing  of  live 
stock  paper,  to  broaden  its  market  and  to 
reduce  its  cost  to  the  borrower. 

The  Bill  Provides  that  a  live  stock  loan 
corporation  under  the  laws  of  whatever 
state  incorporated  may  be  examined  by 
Federal  Rural  Credits  Board,  and  after 
having  its  approval,  live  stock  paper  issued 
by  such  company  and  upon  v/hich  it  has 
borrowed  from  any  national  or  state  bank, 
co-operative  association  or  federal  co-oper- 
ative bank,  shall  be  entitled  to  full  recogni- 

114 


MISCELLANEOUS  FEATURES 

tion  for  rediscount,  not  only  in  the  Rural 
Credits  System  but  also  (to  a  wisely  limited 
extent)  through  the  Federal  Reserve  sys- 
tem. Under  Title  III,  the  bill  specifically 
provides  a  larger  discount  market  for  live 
stock  paper.  Indeed,  Section  2  of  that  Title 
in  its  third  paragraph  actually  provides : 

"(B)  Notes,  drafts  or  bills  of  exchange 
secured  by  chattel  mortgage  upon  live  stock 
may  be  discounted  with  a  maturity  not  ex- 
ceeding two  years,  provided  such  live  stock 
is  at  the  time  of  discount  being  prepared  for 
market  under  such  conditions  that  it  will  be 
ready  for  market  on  or  before  the  date  of 
maturity  of  such  note,  draft  or  bill." 

The  Bank  which  in  the  first  instance 
loans  upon  live  stock  paper  will  satisfy  it- 
self that  such  paper  complies  with  the  con- 
ditions stated.  Having  done  that,  and  the 
leading  bank  being  a  member  of  the  Fed- 
eral Reserve,  the  cattle  paper  thus  safe- 
guarded is  eligible  for  rediscount  by  any 
member  bank  with  its  Federal  Reserve 
bank,  to  an  extent  not  exceeding  the  limit 
prescribed  by  the  Federal  Reserve  board. 

Right  here  it  should  be  observed  again 

115 


RURAL  CREDITS  SYSTEM 

how  carefully  the  bill  avoids  any  possible 
interference  between  or  complication  with 
the  Federal  Reserve,  the  Rural  Credits  or 
the  Farm  Loan  Systems.  Each  are  inde- 
pendent, but  dovetail  into  the  service  of  the 
common  weal. 

Without  setting  up  the  complicated  ma- 
chinery for  a  special  or  independent  system 
of  live  stock  loans,  as  some  of  the  other  bills 
propose,  the  draft  herewith  aims  to  embody 
the  essentials  of  those  measures.  In  a  word, 
it  is  hoped  that  due  and  ample,  as  well  as 
safe  and  sound  provisions  are  made  in  the 
bill  herewith  for  the  handling  of  cattle 
paper  as  an  important  part  of  one  compre- 
hensive federal  rural  credits  rather  than  as 
a  separate  and  distinct  institution. 


116 


CHAPTER  EIGHT 
FEDERAL  CO-OPERATIVE  BANKS 

AN  INTEGRAL  PART  of  an  efficient 
Rural  credits  system  must  allow  the 
people  in  any  neighborhood  or  com- 
munity to  establish  a  little  local  bank  of 
their  own  upon  the  co-operative  principle. 
Let  it  receive  deposits,  make  loans  and 
transact  any  or  all  commercial  business  the 
same  as  any  institution  under  the  national 
bank  act  and  laws  amendatory  thereof. 

Too  much  cannot  be  said  in  favor  of 
granting  the  common  people  the  privilege  of 
doing  their  own  banking  for  their  own  bene- 
fit. And  instead  of  opposing  this  idea,  many 
of  the  larger  banks  favor  it.  They  realize 
that  the  customers  of  these  little  co-opera- 
tives, both  depositors  and  borrowers,  will 
be  mostly  of  the  class  that  do  not  now  do 
business  with  existing  banks  of  discount. 
In  this  way  these  little  banks  may  be  feed- 
ers for  larger  institutions,  either  directly  by 
depositing  with  the  latter,  or  by  educating 

117 


RURAL  CREDITS  SYSTEM 

great  numbers  of  people  into  banking  prac- 
tice who  as  they  attain  a  competency  may 
become  customers  of  larger  institutions. 

In  Rural  Districts  and  little  communities 
where  even  a  small  national  bank  could  not 
expect  to  operate  profitably,  the  little  co-op 
may  thrive  and  do  good  service  because  of 
its  simple  plan,  low  expenses  and  co-opera- 
tive support. 

The  value  of  the  little  institution  to  its 
clientele  will  not  be  measured  merely  by  its 
service  in  receiving  deposits  or  making 
loans.  Its  educational  value  will  be  most 
marked. 

Indeed,  it  has  been  suggested  already 
that  a  little  co-operative  bank  could  serve 
as  an  admirable  school  of  instruction  for 
the  senior  class  in  the  agricultural  high 
school  or  consolidated  school  in  any  county 
or  community.  Boys  and  girls  as  well  as 
adults  could  be  shareholders,  would  make 
their  little  deposits  therein  and  borrow 
therefrom  for  financing  their  club  work  in 
buying  and  feeding  poultry,  pigs,  calves, 
beeves  or  in  crop  raising  or  other  activity. 

118 


FEDERAL  CO-OPERATIVE  BANKS 

Title  Two  of  the  bill  herewith  provides 
briefly  but  comprehensively  for  federal  co- 
operative banks.  Each  member  has  but  one 
vote  regardless  of  the  number  of  shares,  so 
that  it  would  be  impossible  for  banks  under 
this  title  to  be  manipulated  by  "chain"  op- 
erators. As  a  further  precaution,  one  per- 
son may  hold  shares  only  in  one  such  bank. 

The  shareholder  is  liable  for  the  debts  of 
the  bank  only  to  the  par  value  of  its  shares 
standing  in  his  name,  thus  avoiding  the 
double  liability  imposed  upon  national 
banks  or  federal  co-operative  agricultural 
associations.  Congress  may  think  it  best, 
however,  to  impose  the  usual  double  lia- 
bility. 

Starting  with  at  least  $5,000,  the  little 
federal  co-operative  bank  may  go  ahead 
and  do  business  under  the  national  banking 
laws.  It  thus  comes  under  the  supervision 
of  the  Comptroller  of  the  Currency  and  of 
the  Federal  Reserve  Board.  It  is  a  very 
little  cog  in  the  big  wheel  of  the  country's 
system  of  commercial  finance,  subject  to 
the  same  supervision,  laws,  rules  and  regu- 
lations as  national  banks. 

119 


RURAL  CREDITS  SYSTEM 

When  it  gets  big  enough  it  must  even  join 
the  Federal  Reserve  System. 

It  Is  Obligatory  that  each  Federal  Co-op- 
erative Bank  become  a  member  of  the  de- 
benture bank  of  its  state,  by  investing  there- 
in not  less  than  10  percent  of  the  co-op's 
cash  capital. 

This  is  a  much  larger  proportion  than  is 
required  of  either  national  or  state  banks, 
but  it  is  none  too  much.  These  little  insti- 
tutions, being  a  minor  but  important  feature 
of  the  whole  system  of  co-operative  finance 
or  rural  credits,  will  mostly  serve  the  local 
farming  community  of  moderate  means, 
who  need  its  facilities  for  small  deposits, 
checks  and  current  loans,  in  order  to  sup- 
plement the  service  done  for  such  people 
by  their  co-operative  agricultural  associa- 
tion or  debenture  bank. 

As  a  member  of  its  debenture  bank,  the 
co-operative  institution  may  rediscount  its 
paper  therewith — another  reason  why  at 
least  one-tenth  of  its  capital  and  surplus 
should  be  invested  in  shares  of  the  deben- 
ture bank. 

120 


FEDERAL  CO-OPERATIVE  BANKS 

A  Real  Estate  Department  in  any  federal 
co-operative  bank,  also  in  any  national 
bank,  is  provided  for  in  section  five  of  title 
two. 

This  is  done  so  conservatively  and  prud- 
ently that  with  suitable  management  such  a 
department  may  be  of  real  service  to  the 
community  and  profitable  to  the  bank  with- 
out interfering  with  its  commercial  depart- 
ment. 

The  bill  provides  that,  the  real  estate  de- 
partment must  be  wholly  segregated  from 
the  other  departments  of  the  bank.  Not  less 
than  five  percent  nor  more  than  ten  percent 
of  the  institution's  capital  and  surplus  may 
be  segregated  to  and  employed  by  this  de- 
partment. 

It  may  invest  in  United  States  securities, 
federal  farm  loan  bonds  or  federal  deben- 
tures. It  can  also  loan  to  nearby  co-opera- 
tive associations  secured  by  their  real  es- 
tate. 

The  little  bank  also  may  loan  on  first 
mortgages  on  farms  within  thirty  miles  of 
the  bank  and  also  may  take  a  second  mort- 
gage subject  to  the  federal  land  bank's  first 

121 


RURAL  CREDITS  SYSTEM 


lien.  These  mortgage  loans  must  not  be  for 
more  than  five  years. 

This  is  an  even  closer  restriction  than  ex- 
isting law  applies  to  national  banks. 

Any  national  bank  outside  of  a  central 
reserve  city  is  now  authorized  to  make  loans 
upon  improved  and  unencumbered  farm 
lands  within  its  federal  reserve  district  or 
within  a  radius  of  100  miles,  irrespective  of 
district  lines  for  not  longer  than  five  years, 
or  upon  other  real  estate  for  not  longer  than 
one  year  up  to  not  exceeding  50  percent  of 
the  actual  value  of  the  property.  Such  loans 
in  the  aggregate  may  equal  25%  of  its  cap- 
ital and  surplus  or  one-third  of  its  time  de- 
posits. 

Savings  Department — In  practice,  how- 
ever, national  banks  do  not  freely  exercise 
their  privilege  of  making  loans  on  real  es- 
tate. Evidently  it  was  enacted  in  connec- 
tion with  the  clause  that  "Such  banks  may 
continue  hereafter  as  heretofore  to  receive 
time  deposits  and  to  pay  interest   on  the 


same. 


This  quotation  is  the  only  warrant  in  law 


122 


FEDERAL  CO-OPERATIVE  BANKS 

for  the  savings  departments  of  national 
banks,  a  feature  of  their  operations  which 
has  been  much  criticised  as  absorbing  pop- 
ular savings  for  commercial  purposes  in 
contra-distinction  to  and  without  the  safe- 
guards of  the  mutual  savings  banks,  which 
are  the  secret  of  much  of  New  England^s 
thrift  and  prosperity  but  which  are  rela- 
tively unknown  west  of  the  Hudson  River. 

Of  course  Federal  co-operative  banks 
likewise  might  have  a  savings  department. 

Small  Loans  will  be  especially  popular 
with  these  little  co-operative  banks.  Many 
American  banks  and  bankers  of  late  years 
have  encouraged  small  deposits,  but  I  do 
not  know  of  any  of  them  that  have  encour- 
aged the  business  of  making  small  loans. 

They  are  glad  enough  to  get  the  little  de- 
posits of  little  people,  but  they  are  averse 
to  making  little  loans  to  little  people.  This 
may  be  because  such  petty  business  "costs 
more  than  it  is  worth"  under  present  meth- 
ods of  banking  with  its  relatively  large 
overhead  expenses. 

Yet  the  Bank  of  France  actually  makes 
millions  of  loans  every  year  in  sums  of  100 

123 


RURAL  CREDITS  SYSTEM 

francs  or  $20.  It  even  employs  an  army  of 
collectors  to  go  out  and  collect  its  notes 
when  due,  instead  of  having  the  borrower 
come  to  the  bank  as  is  the  usual  custom  in 
the  United  States. 

Undoubtedly  there  is  a  large  field  for 
these  little  co-ops  in  making  petty  loans. 
This  business  can  be  so  simplified  that  the 
expense  will  be  nominal,  the  chances  of 
risk  reduced  to  a  minimum,  and  the  rate 
therefore  may  be  made  reasonable  to  the 
small  borrower  for  the  first  time  in  Ameri- 
can history. 

Towns  and  Cities  possibly  may  offer  a 
limited  field  for  the  activities  of  these  little 
people's  bank.  Experience  may  show  that, 
under  the  auspices  of  labor  unions,  charit- 
able organizations  or  eleemosynary  institu- 
tions, a  Federal  Co-operative  Bank  may  be 
developed  to  encourage  thrift  and  to  supply 
small  loans  and  current  credits  to  people  of 
very  limited  means.  With  such  facilities 
for  self-help  these  people  who  today  are  be- 
low the  level  of  the  classes  that  patronize 
existing  banking  institutions,  may  be  en- 

124 


FEDERAL  CO-OPERATIVE  BANKS 

abled  to  help  themselves  to  a  better  estate 
gradually  and  slowly,  but  surely. 

It  is  an  economic  sin  that  this  large  con- 
stituency should  have  been  so  long  deprived 
of  such  an  agency,  or  forced  to  submit  to 
Shylock  extortion  in  order  to  obtain  the 
loans  or  credits  required  to  meet  impera- 
tive necessities.  At  least  there  can  be  no  ob- 
jection to  offering  this  constituency  the 
help  to  self-help  which  may  be  afforded  by 
a  Federal  Co-operative  Bank.  The  success- 
ful operation  of  one  such  institution  might 
alone  be  worth,  as  an  example  for  others,  all 
the  effort  involved  in  the  enactment  of  the 
bill  submitted. 

The  Absence  of  this  type  of  little  com- 
mercial bank  upon  the  co-operative  prin- 
ciple is  a  grave  defect  in  the  financial  sys- 
tem of  the  United  States.  This  defect  is  not 
remedied  by  the  so-called  credit  unions 
which,  originally  created  under  the  laws  of 
Massachusetts,  now  exist  in  several  other 
states,  notably  North  Carolina.  Excellent 
in  their  way,  credit  unions  are  not  banks, 
they  are  not  quite  in  keeping  with  the  cus- 

125 


RURAL  CREDITS  SYSTEM 

toms  of  the  American  people  and  have  not 
proven  of  particular  efficacy. 

There  is  no  valid  reason  why  the  common 
people  should  not  be  encouraged  to  have 
little  banks  of  their  own.  To  be  sure,  this 
will  put  some  extra  work  upon  the  office  of 
the  Comptroller  of  the  Currency  at  Wash- 
ington, but  that  is  a  petty  matter  compared 
to  the  great  advantages  that  may  accrue  to 
such  of  the  masses  as  work  together  to  es- 
tablish, patronize  and  conduct  a  Federal 
Co-operative  Bank. 

Let  a  Labor  Union  in  any  community 
start  such  a  little  bank  of  its  own,  and  de- 
velop the  same  gradually  under  the  tutel- 
age of  national  supervisors,  this  of  itself 
will  enable  those  organizations  to  get  an 
experience  and  acquire  a  knowledge  that 
may  be  of  constructive  value  to  them  and 
their  members. 

Righteous  ideas  of  thrift,  proper  financ- 
ing by  lowly  people,  will  be  conserved  best 
through  their  individual  and  associated  ex- 
perience in  little  co-operative  banks  of  their 
own. 

356 


FEDERAL  CO-OPERATIVE  BANKS 

"O  P  M."  is  a  formula  that  has  done 
much  harm.  Certain  institutions,  groups  or 
individuals  have  waxed  fat  by  the  manipu- 
lation of  "Other  People's  Money",  but  this 
gives  them  no  vested  right  to  manipulate 
the  little  savings  of  the  little  people  for  the 
benefit  of  selfish  interests  or  big  combina- 
tions. 

The  wage  earner,  the  person  of  really 
small  means,  women  and  children — each  is 
a  capitalist.  The  prejudice  against  capital, 
in  the  minds  of  some  of  these  people,  is 
prejudice  against  capital  in  big  bunches, 
not  in  the  small  amounts  that  they  possess ! 

When  as  a  boy  I  hit  the  city  of  Denver 
with  only  ten  cents  in  my  pocket,  the  boy 
went  without  a  couple  of  meals  until  he 
could  begin  earning  at  least  something,  for 
he  said  to  himself:  "As  long  as  I  have  got 
ten  cents  in  my  pocket,  I  am  a  capitalist.  If 
I  spend  that  I  am  broke — up  against  it, 
busted!" 

And  it  may  be  added  as  a  fresh  illustra- 
tion of  the  power  of  small  savings  that  to 
keep  down  his  expenses  during  his  first 
week  in  Denver  the  lad  slept  on  old  news- 

127 


RURAL  CREDITS  SYSTEM 

papers  under  the  printing  office  bench. 
When  he  received  his  wages  of  $10  the  first 
Saturday  night,  he  paid  $5  for  his  meals 
which  he  had  obtained  on  credit,  sent  $5  to 
his  father  who  was  in  need,  and  still  had  his 
original  ten  cents  in  his  pocket.  The  joy 
of  that  triumph  still  lingers  in  the  memory, 
for  the  boy  tasted  the  priceless  pleasure  of 
having  met  and  conquered  the  world ! 

The  least  that  our  national  financial  sys- 
tem can  do  to  encourage  young  and  old  to 
similar  thrift,  greater  effort  and  larger  suc- 
cess, is  to  authorize  the  common  people  to 
employ  their  own  savings,  their  own  re- 
sources and  their  own  character  in  the  de- 
velopment of  their  own  finances  through 
their  own  federal  co-operative  banks. 


128 


CHAPTER  NINE 
FEDERAL  RESERVE  AMENDMENT 

IT  IS  UNDOUBTEDLY  true  that  the  Fed- 
eral Reserve  System  was  of  immeasur- 
able service  to  every  interest  throughout 
the  United  States,  especially  prior  to  and 
during  the  war.  But  for  the  facilities  af- 
forded by  this  system,  it  would  have  been 
well  nigh  impossible  to  have  handled  the 
gigantic  financial  operations  of  the  war 
period. 

It  is  equally  true  that,  in  the  sudden  and 
drastic  deflation  of  1919-21  the  Federal  Re- 
serve took  a  prominent  part.  The  evidence 
seems  to  show,  however,  that  its  most  dras- 
tic policies  were  forced  upon  the  Federal 
Reserve  Board  by  the  then  Secretary  of  the 
Treasury,  D.  F.  Houston. 

With  all  its  faults  of  omission  or  commis- 
sion, however,  the  usefulness  of  the  System 
has  been  amply  demonstrated.  It  is  some- 
thing to  be  wisely  used  but  not  unfairly 
abused. 

Also  it  is  true  that  only  a  comparatively 
small  number  of  all  the  banks  in  the  United 

129 


RURAL  CREDITS  SYSTEM 


States  as  yet  are  members  of  the  Federal 
Reserve.  These  member  banks  carried  the 
load  and  sustained  the  responsibility  of  the 
system  during  the  critical  period,  while  the 
much  larger  number  of  non-member  banks 
shared  in  the  benefits  of  the  system  but  es- 
caped its  responsibilities. 

At  the  Most  Critical  Period  in  the  finan- 
cial history  of  this  country  about  30  June 
1921,  out  of  a  total  of  30,748  banks  in  the 
United  States,  only  9,745  were  members  of 
the  reserve  system.  Of  these  member  banks, 
8,150  were  national  banks  which,  under  the 
terms  of  their  charters,  must  become  mem- 
bers of  the  system.  The  remaining  1595 
member  institutions  were  state  banks, 
which  had  applied  voluntarily  for  admis- 
sion to  the  system.  Furthermore,  of  the 
8150  national  banks  that  were  members  at 
that  date,  no  less  than  7730  were  classed  as 
country  banks,  374  were  national  banks  in 
reserve  cities  and  46  were  nationals  in  the 
central  reserve  cities. 

Of  the  1595  state  banks  and  trust  com- 
panies that  were  members,  55  were  in  cen- 
tral reserve  cities,  198  were  in  other  reserve 

130 


FEDERAL  RESERVE  AMENDMENT 

cities  and  1342  were  other  banks  which  may 
be  classed  as  "country  banks". 

State  banks  have  been  coming  into  the 
system  since,  but  at  the  date  named  out  of 
21,003  non-member  banks  in  the  United 
States,  no  less  than  19,672  were  state  banks 
and  trust  companies,  623  were  mutual  sav- 
ings banks  and  708  were  private  banks. 

Some  Non-member  Banks,  especially  in 
the  smaller  cities  and  rural  communities, 
carried  the  deflation  policy  to  an  extreme. 
When  remonstrated  with,  they  "passed  the 
buck"  to  the  Federal  Reserve,  yet  were  not 
even  its  members!  The  detailed  table  on 
page  142  affords  illuminating  insight  into 
this  situation. 

It  should  not  be  allowed  to  continue. 
Many  member  banks  are  insistent  that 
these  non-members  be  brought  into  the  sys- 
tem forthwith.  "If  they  won't  come  in  vol- 
untarily they  should  be  forced  in". 

Indeed,  some  bankers  have  gone  so  far  as 
to  suggest  that  any  state  banking  institu- 
tion, other  than  mutual  savings  banks, 
which  fails  to  join  the  Federal  Reserve  Sys- 
tem within  say  six  months  from  the  amend- 

131 


RURAL  CREDITS  SYSTEM 

ment  to  the  reserve  Act  proposed  herewith, 
should  be  denied  the  privileges  of  the  Unit- 
ed States  mails ! 

They  ask  why  should  the  government  al- 
low non-member  banks  to  use  the  mails, 
when  the  alternative  seems  to  be  the  only 
way  in  which  the  federal  government  can 
force  recalcitrant  state  banks  into  the 
system. 

"We  Take  Pride  in  the  fact  that  we  are 
not  members  and  have  not  even  redis- 
counted  any  paper  with  any  correspond- 
ent bank  that  is  a  member  of  the  Fed- 
eral Reserve  System",  say  some  non-mem- 
bers. But  practically  every  banker  who 
is  a  member  and  who  uses  the  Reserve  Sys- 
tem recognizes  the  fallacy  of  such  pride.  In 
almost  every  case  non-member  banks  often 
fail  to  extend  the  accommodation  to  which 
their  customers  were  reasonably,  safely 
and  morally  entitled. 

The  Federal  Reserve  System  was  erected 
for  the  use  of  all  the  banks  and  all  the 
people  all  the  time.  Any  institution  which 
stays  out  of  the  system  for  fallacious  rea- 
sons may  easily  find  itself  unable  to  do  its 

132 


FEDERAL  RESERVE  AMENDMENT 

full  duty  toward  its  customers  and  the 
people  of  its  bailiwick  in  times  of  storm  and 
stress. 

Many  a  banker  who  was  loath  to  join  the 
Federal  Reserve  system  has  learned  by  ex- 
perience of  its  great  merit  and  the  value  of 
the  insurance  which  it  offers.  Non-mem- 
bers may  well  imitate  such  men. 

The  Failures  of  Banks  in  former  times 
was  partly  due  to  lack  of  thrift  in  a  com- 
munity. Banking  failures  also  were  brought 
about  by  a  spirit  of  speculative  adventure 
or  reckless  plunging — characteristics  which 
occur  more  frequently  among  people  where 
the  thrift  instinct  is  not  generally  prevalent. 

The  disgraceful  frequency  with  which 
bank  failures  occurred  in  former  years  was 
due  also  to  the  absence  of  any  such  mobili- 
zation of  banking  resources  and  of  credits 
as  has  been  brought  about  under  the  Fed- 
eral Reserve  System.  Before  it  went  into 
effect,  however,  too  many  of  the  so-called 
average  bankers  opposed  it  or  other  plans 
for  safeguarding  finance.  Among  bankers, 
as  among  men  in  other  vocations,  leaders  of 
broad  vision,  men  of  understanding  of  the 

133 


RURAL  CREDITS  SYSTEM 

science  as  well  as  of  the  art  of  banking,  are 
not  overly  numerous. 

Men  of  this  type  knew  why  it  was  that, 
during  the  twenty  years  ended  with  1910, 
banks  failed  in  the  tlnited  States  at  the  rate 
of  about  one  bank  every  four  days !  These 
men  who  can  see  all  around  the  problem 
realize  today  that  under  the  safeguards  out- 
lined herein,  as  well  as  those  provided  by 
existing  law,  the  little  federal  co-operative 
banks  I  suggest  doubtless  would  make  a 
better  record  for  success  in  the  coming 
twenty  years  than  did  state  and  national 
banks  during  the  twenty  years  referred  to 
in  which  they  "went  broke"  at  the  rate  of 
one  bank  about  every  four  days. 

Co-operative  Enterprises  in  former  years 
also  harvested  a  big  crop  of  failures,  but 
experience  and  better  organization, 
coupled  with  more  knowledge  and  forced 
by  necessity,  insures  success  in  many  of  the 
properly  financed  co-operative  undertak- 
ings of  the  present  day.  I  feel  sure,  there- 
fore, that  this  adequate  method  for  rural 
credits  with  its  Federal  co-operative  banks, 

134 


FEDERAL  RESERVE  AMENDMENT 

together  with  associations  for  the  co-opera- 
tive assemblage,  grading,  packing,  distrib- 
uting and  marketing  of  produce,  is  certain 
to  make  a  record  in  accomplishing  its  pur- 
pose even  more  favorable  than  was  the 
banking  record  for  the  two  decades  cited. 

The  Co-operative  Idea  is  the  very  basis 
of  the  whole  Federal  Reserve  System.  Each 
member  of  a  Federal  Reserve  bank  has  only 
one  vote  in  its  affairs  and  in  the  election  of 
representatives  on  its  directorate.  The 
bank  with  $100,000,000  of  resources  has  no 
more  voting  power  or  influence  than  an  in- 
stitution with  only  $100,000,  although  the 
latter's  holdings  in  shares  of  the  reserve 
bank  are  infinitely  smaller  than  the  former, 
though  upon  the  same  percentage  basis. 

The  mobilization  of  banking  brought 
about  through  the  reserve  system  is  funda- 
mentally co-operative.  In  view  of  the  great 
benefits  resulting  therefrom,  how  or  why 
can  any  interest  oppose  granting  to  people 
of  very  limited  means  the  privileges  of  co- 
operative banking  for  their  own  benefit,  as 
outlined  for  federal  co-operative  banks. 

135 


RURAL  CREDITS  SYSTEM 

The  First  Amendment  proposed  in  the 
bill  herewith  strikes  out  the  following  pro- 
vision in  existing  law : 

"Provided  that  notes,  drafts  and  bills 
drawn  or  issued  for  agricultural  purposes 
or  based  on  live  stock  and  having  a  matur- 
ity not  exceeding  six  months,  exclusive  of 
days  of  grace,  may  be  discounted  in  an 
amount  to  be  limited  to  a  percentage  of  the 
assets  of  the  Federal  Reserve  Bank,  to  be 
ascertained  and  fixed  by  the  Federal  Re- 
serve Board." 

In  Lieu  Thereof,  broader  provisions  for 
the  discount  of  agricultural  and  live  stock 
paper  are  proposed  in  Section  two  of  the 
amendments. 

Not  only  member  banks  of  the  Federal 
Reserve,  but  Federal  Rural  Credits  Com- 
pany or  any  federal  debenture  bank,  it  is 
suggested,  may  discount  agricultural  or  live 
stock  paper  having  a  maturity  of  not  ex- 
ceeding six  months. 

It  is  further  urged  that  the  discount  privi- 
lege be  extended  to  agricultural  paper  when 
secured  by  warehouse  receipts  conveying 

136 


FEDERAL  RESERVE  AMENDMENT 

title  to  readily  marketable  and  non-perish- 
able agricultural  products,  when  within  one 
year  of  maturity.  But  the  Federal  Reserve 
Board  is  to  draft  regulations  designed  to  in- 
sure that  only  such  paper  shall  be  dis- 
counted as  is  "a  part  of  a  program  of  or- 
derly marketing  of  such  agricultural  prod- 
ucts and  not  for  speculative  holding.'^ 

Live  stock  paper,  thoroughly  secured  by 
chattel  mortgage  may  be  discounted  with  a 
maturity  not  exceeding  two  years,  but  only 
in  case  the  live  stock  is  being  prepared  for 
market  under  such  conditions  that  it  would 
be  marketable  on  or  before  such  paper  ma- 
tures. 

The  Present  Limit  for  the  discount  of 
farm  or  live  stock  paper  is  six  months,  while 
commercial  paper  is  limited  to  three 
months  but  as  a  matter  of  fact  is  subject  to 
repeated  renewal. 

The  longer  terms  proposed — up  to  one 
year  on  certain  agricultural  paper  and  up  to 
two  years  on  live  stock  instruments  of  cred- 
it, are  very  much  needed.  The  amendments 
provide  against  this  privilege  being  abused, 

137 


RURAL  CREDITS  SYSTEM 

as  Federal  Reserve  Board  may  prescribe 
the  extent  to  which  any  member  bank  be  al- 
lowed to  discount  such  longer  term  paper. 

Strong  Opposition  is  voiced  to  any  such 
extension  of  the  discount  privilege.  The 
opponents  are  of  three  classes : 

(a)  Large  and  wealthy  institution  that 
do  not  favor  any  policy  which  may  have  a 
tendency  to  liberalize  this  service  that 
banking  can  render  to  the  agricultural  and 
live  stock  industries  at  other  then  high 
rates.  This  objection  has  little  standing  be- 
cause based  upon  selfishness. 

(b)  Really  competent  students  of  finance 
who  fear  the  introduction  into  the  Federal 
Reserve  of  any  paper  whatsoever  having 
longer  than  six  months  maturity.  These 
fairminded  authorities  seem  to  dread  al- 
lowing federal  reserve  notes,  which  so 
largely  compose  the  cash  of  the  country,  to 
be  issued  against  either  non-perishable 
agricultural  products  or  live  stock,  even 
when  either  or  both  are  practically  enroute 
to  the  consumer. 

Such  critics  admit   that   cloth,    copper, 

138 


FEDERAL  RESERVE  AMENDMENT 

lumber  and  practically  any  and  all  other 
merchandise  enroute  from  producer  to  con- 
sumer is  a  safe  basis  upon  which  to  issue 
federal  reserve  notes  for  a  limited  time. 
But  is  not  the  food  which  must  be  consumed 
and  that  must  be  paid  for  before  it  is  con- 
sumed an  even  better  basis  for  such  credits 
than  other  forms  of  merchandise  which  are 
not  nearly  so  indispensable  as  human  food? 

The  Third  Objecting  party  is  most  num- 
erous. It  is  composed  mainly  of  people  who 
look  wise  but  who  do  not  know  what  they 
are  talking  about !  The  less  they  know  as  to 
the  science  of  exchange  and  the  art  of  bank- 
ing, the  more  loudly  they  oppose  the  slight- 
est innovation  upon  the  system. 

This  party  is  most  numerous  among  the 
officials  and  directors  of  the  large  majority 
of  banks  that  are  not  even  members  of  the 
system.  That  bunch  ^'holler"  the  most 
against  any  evolution,  yet  have  never  done 
a  thing  to  support  the  system  as  it  is !  Of 
course  opposition  from  such  a  source 
should  have  no  weight  before  the  public  or 
in  Congress. 

139 


RURAL  CREDITS  SYSTEM 

Admittance  to  the  Reserve  is  granted  to 
smaller  banks  as  described  in  Section  3. 
Under  the  present  law  the  bank  must  have 
at  least  $25,000  paid  up  capital  in  order  to 
become  a  member  of  its  Federal  Reserve 
Bank. 

The  amendment  now  proposed  also 
would  allow  any  federal  co-operative  bank 
to  become  a  member  when  it  attains  the 
amount  of  paid  up  and  unimpaired  capital 
required  of  national  or  state  banks. 

No  valid  objection  can  be  raised  to  either 
of  these  modifications.  Indeed  every  rea- 
sonable effort  should  be  made  to  encourage 
all  banks,  the  small  as  well  as  large,  to  join 
the  Federal  Reserve  system,  provided  only 
that  they  are  sound,  regardless  of  their  size. 

Indeed,  a  smaller  bank  often  is  much 
closer  to  its  customers  than  larger  institu- 
tions. At  least  the  smaller  bank  may  better 
serve  the  people  of  limited  means  who 
most  need  encouragement  to  thrift  and  rea- 
sonable facilities  for  employing  their  little 
credits  to  economic  advantage. 

A  New  Feature  is  the  granting  to  member 

140 


FEDERAL  RESERVE  AMENDMENT 

banks,  by  section  4  of  the  proposed  amend- 
ments, the  right  to  discount  their  direct  ob- 
ligations when  secured  by  notes  of  Federal 
Rural  Credits  Company  or  by  Federal  de- 
bentures, or  to  rediscount  paper  thus  se- 
cured. 

The  Discount  Privilege  is  also  extended 
to  export  paper  issued  by  Federal  Rural 
Credits  Company  pursuant  to  section  7  of 
Title  I,  which  paper  is  amply  secured  by 
warehouse  receipts  and  has  not  more  than 
one  year  to  run. 

Federal  debentures  issued  by  any  Fed- 
eral debenture  bank  also  may  be  dis- 
counted in  the  Federal  Reserve  when  with- 
in one  year  of  maturity,  according  to  para- 
graph 4  of  section  2  of  the  amendments 
outlined  under  Title  III. 

It  Is  Conservative  to  say  that  all  these 
amendments  tend  to  strengthen  and  not 
weaken  the  Federal  Reserve  System.  Most 
of  these  changes  already  have  been  spon- 
sored by  substantial  authorities.  They  are 
further  justified  by  the  experience  of  War 
Finance  Corporation.  They  do  not  infringe 

141 


RURAL  CREDITS  SYSTEM 

upon  the  safety  or  efficiency  of  the  reserve 
system. 

Rules  for  the  use  of  the  privileges  pro- 
posed will  be  made  by  Federal  Reserve 
Board  in  a  way  to  accomplish  maximum 
efficiency  at  minimum  of  hazard. 

Because  Heretofore  the  Federal  Reserve 

has  confined  its  discounts  so  largely  to  com- 
mercial paper,  including  also  paper  repre- 
senting deals  of  a  highly  speculative  char- 
acter, it  has  come  to  be  the  fashion  with  a 
certain  element  in  the  banking  fraternity 
to  take  firm  ground  against  any  liberaliz- 
ing of  the  discount  privilege.  But  going 
back  a  few  years  we  would  find  many  of 
these  same  gentlemen  wholly  opposing  the 
Reserve  System  itself. 

What  is  there  about  grain,  flour  or  cot- 
ton, when  it  has  passed  from  the  producer 
into  the  hands  of  the  speculator  which  so 
transforms  its  character  as  to  make  it  bet- 
ter collateral?  To  be  sure,  that  process 
tends  to  make  the  product  more  mobile  and 
to  that  extent  more  salable  or  pushes  it 
further  along  enroute  to  the  ultimate  con- 
sumer who  must  pay  for  it  before  he  can 

142 


FEDERAL  RESERVE  AMENDMENT 

get  it.  But  the  organization  herein  pro- 
posed for  intermediate  credits  imparts 
similar  mobility  to  such  products  when  in 
the  hands  of  the  producer. 

Right  here  we  get  down  to  the  real  nub 
of  the  opposition.  The  present  or  old  plan 
operates  primarily  in  the  interest  of  the 
middleman — of  the  speculator  who  would 
profit  from  the  producer's  inability  of 
finance  himself.  My  plan  aims  to  mobilize 
products  while  still  in  the  producers'  hands, 
and  to  do  this  through  an  organization  and 
a  system  and  with  a  safety,  stability  and 
availability  that  will  make  these  products 
even  better  security  than  heretofore. 

MEMBERSHIP  IN  FEDERAL  RESERVE 

NUMBER  OF  MEMBER  AND   NONMEMBER  BANKS   IN   EACH 
STATE  AS    OF   THE   END   OF  JUNE   1921. 

TOTAL  MEMBER         NONMEMBER 

NUMBER  BANKS  BANKS 

*^  4^    n  p^  4.9    DO 

STATE  ^2  |„  „  g.nWHiwHi'Sic-S". 

|S     Jig     sg        |g     51§    ^-gllSg-^g 

Maine  64  94  158  61  3  52  42 

New  Hampshire  56  70  126  56  .  25  45 

Vermont  49  59  108  49  .  39  20 

Massachusetts  193  277  470  162  81  80  197 

Rhode    Island  20  28  48  17  3  13  15         . 

Connecticut  69  154  223  64  5  67  80         7 

New   York  601  478  1,079  505  96  238  143       97 

New  Jersey  265  137  402  220  46  111  26 

143 


RURAL  CREDITS  SYSTEM 


TOTAL 

MEMBER 

NONMEMBER 

NUMBER 

BANKS 

BANKS 

C    m    S 

C    CO    0) 

STATE 

^"1 

O  a;  rt 

"3 

C  m 

4?  s'H 

hi 

Ul  (SO 

Si  « 

Pennsylvania 

917 

690 

1,607 

861 

56 

559 

10 

121 

Delaware 

22 

33 

55 

18 

4 

31 

2 

Maryland 

96 

189 

285 

90 

6 

172 

17 

Dist.    of    Col. 

16 

31 

47 

15 

1 

31 

Virginia 

190 

321 

511 

174 

16 

321 

West   Virginia 

132 

218 

350 

123 

9 

217 

i 

North  Carolina 

102 

539 

641 

87 

15 

539 

South   Carolina 

99 

361 

460 

81 

18 

361 

Georgia 

165 

558 

723 

95 

70 

558 

Florida 

68 

204 

272 

56 

12 

204 

Alabama 

125 

233 

358 

107 

18 

233 

Mississippi 

34 

321 

355 

31 

3 

321 

Louisiana 

50 

219 

269 

36 

14 

219 

Texas 

749 

860 

1.609 

557 

192 

833 

27 

Arkansas 

118 

370 

488 

83 

35 

370 

Kentucky 

145 

457 

602 

134 

11 

457 

Tennessee 

113 

457 

570 

98 

15 

457 

Ohio 

459 

673 

1,132 

375 

84 

549 

8 

12i 

Indiana 

274 

809 

1,083 

252 

22 

637 

5 

167 

Illinois 

574 

1.319 

1,893 

494 

80 

1,319 

Michigan 

276 

461 

737 

117 

159 

407 

64 

Wisconsin 

189 

809 

998 

153 

36 

802 

7 

Minnesota 

371 

1,165 

1,536 

341 

30 

1,156 

9 

Iowa 

458 

1,345 

1.803 

354 

104 

1.245 

100 

Missouri 

169 

1,503 

1,672 

131 

38 

1.500 

3 

North  Dakota 

185 

669 

854 

180 

5 

669 

, 

South  Dakota 

152 

548 

700 

134 

18 

548 

, 

Nebraska 

207 

977 

1,184 

186 

21 

977 

Kansas 

275 

1.104 

1,379 

267 

8 

1,104 

Montana 

202 

218 

420 

143 

59 

211 

7 

Wyoming 

51 

104 

155 

47 

4 

103 

1 

Colorado 

146 

253 

399 

143 

3 

250 

3 

New  Mexico 

57 

69 

126 

50 

7 

69 

Oklahoma 

379 

602 

981 

359 

20 

602 

Washington 

150 

250 

400 

96 

54 

250 

Oregon 

129 

156 

285 

96 

33 

156 

California 

355 

377 

732 

309 

46 

376 

Idaho 

129 

87 

216 

83 

46 

87 

Utah 

64 

65 

129 

28 

36 

65 

Nevada 

11 

24 

35 

11 

24 

Arizona 

26 

58 

83 

21 

4 

58 

TOTAL 

9.745 

21.003 

30.748 

144 

8,150 

1.595 

19,672 

623 

708 

Appendix 


Full  Text  of  Bill  Drafted 
by  the  Author 

for  the 

Rural  Credits  System 

of  the  United  States 


THE  BILL  PROPOSED 

To  provide  credit  facilities  for  the  orderly  mar- 
keting of  agricultural  products,  and  for  the 
preservation  and  development  of  agriculture 
and  of  the  livestock  industry  of  the  United 
States ;  to  extend  and  stabilize  the  market  for 
United  States  bonds  and  other  securities;  to 
provide  fiscal  agents  for  the  United  States; 
to  amend  the  Federal  Reserve  Act;  to 
provide  for  Federal  Co-operative  banks, 
and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Rep- 
resentatives of  the  United  States  of  America  in 
Congress  assembled.  That  the  short  title  of  this 
act  shall  be  the  "Rural  Credits  Act  of  1922." 

DEFINITIONS 

Member 

Paragraph  1.  Section  1.  That  the  term 
"member,"  unless  otherwise  specified  shall 
be  held  to  mean  any  bank  or  association 
which  has  subscribed  to,  paid  for  and  owns  stock 
in  the  Federal  Debenture  bank  for  the  state  in 
which  the  member  is  domiciled  to  the  amount 
required  by  this  Act,  and  who  has  received  a  cer- 
tificate of  membership  issued  by  the  board  of 
directors  of  said  bank. 

146 


FOR  RURAL  CREDITS 

Agricultural  purposes 

P  2.  The  term  "agricultural  purposes"  shall 
be  held  to  include  the  cultivation  of  lands,  the 
planting,  harvesting,  assembling,  grading,  distri- 
bution and  marketing  of  crops  and  the  purchas- 
ing, breeding,  feeding  and  marketing  of  live  stock, 
or  the  ownership  thereof. 

Agricultural  business 

P  3.  The  term  "agricultural  business"  shall  be 
held  to  include  the  ownership  and  operation  of 
real  estate  and  commodities  required  for  agricul- 
tural purposes,  including  plants  co-operatively 
owned  by  producers  for  the  manufacture  or  prep- 
aration for  market  of  dairy  products  and  other 
agricultural  products  or  for  producing,  buying, 
selling  or  storing  any  merchandise,  goods  or  com- 
modities which  may  be  required  for  or  employed 
in  agricultural  purposes. 

Agricultural  loans 

P  4.  The  term  "agricultural  loans"  shall  be 
held  to  mean  loans,  the  proceeds  of  which  have 
been  used  or  are  to  be  used  for  agricultural  pur- 
poses and  agricultural  business  as  defined  by  this 
Act,  exclusive  of  live  stock  paper,  commodity 
paper  or  real  estate  obligations. 

Live  stock  paper 

P  5.  The  term  "live  stock  paper"  shall  be  held 
to  mean  notes,  drafts,  bills  of  exchange  or  accept- 

147 


THE  BILL  PROPOSED 

ances  issued  by  a  company  incorporated  under  the 
laws  of  any  state  which  is  authorized  by  law  to 
make,  and  the  principal  business  of  which  shall 
consist  in  making,  loans  and  advances  on  the 
security  of  live  stock,  such  live  stock  paper  to  be 
secured  by  the  notes  given  to  it  for  loans  on  live 
stock  together  with  the  chattel  mortgages  secur- 
ing such  obligations.  Provided  that  only  the  paper 
issued  by  live  stock  loan  companies  approved  by 
the  Federal  Rural  Credit  Board  and  issued  to  an 
amount  not  exceeding  ten  times  the  paid  in  cash 
capital,  may  be  discounted  or  sold  through  the 
Federal  Rural  Credits  System. 

Commodity  paper 

P  6.  The  term  "commodity  paper"  shall  be 
held  to  mean  credit  instruments  secured  by  rela- 
tively non-perishable  agricultural  products  in 
warehouses,  fully  insured,  and  represented  by 
warehouse  certificates  issued  by  warehousing  as- 
sociations or  corporations  approved  by  Federal 
Rural  Credits  Board.  Commodity  paper  also  shall 
be  held  to  include  credit  instruments  secured  by 
chattel  mortgages,  bills  of  lading,  shipping  docu- 
ments or  other  instruments  in  writing  conveying 
and  securing  marketable  title  to  agricultural 
products,  including  live  stock  products  but  not 
live  animals. 

148 


FOR  RURAL  CREDITS 

Co-operative  association 

P  7.  The  term  "co-operative  association"  shall 
be  held  to  mean  any  association  upon  the  co- 
operative principle  composed  of  five  or  more  per- 
sons duly  incorporated  pursuant  to  this  Act  or 
under  the  laws  of  the  state  in  which  its  principal 
office  is  domiciled,  and  which  association  is  ap- 
proved by  Federal  Rural  Credits  Board  en- 
gaged in  producing  staple  agricultural  prod- 
ucts, organized  for  the  purpose  of  marketing 
in  an  orderly  manner  agricultural  products 
belonging  to  the  members  composing  such 
association,  or  for  conducting  co-operatively 
an  agricultural  business  for  supplying  its 
members  with  any  commodities  they  may 
require  for  agricultural  purposes,  such  product  by 
agreement  having  been  transferred  to  the  asso- 
ciation as  security  for  the  obligations  of  such 
association. 

Real  estate  obligations 

P  8.  By  the  term  "real  estate  obligations"  is 
meant  (a)  first  mortgages  upon  real  estate  owned 
by  incorporated  co-operative  associations  for  agri- 
cultural purposes  or  agricultural  business;  (b) 
second  mortgages  upon  farms,  the  first  mortgage 
on  which  is  held  by  the  Federal  Land  Bank  for 
the  district  in  which  the  Debenture  bank  is  lo- 

149 


THE  BILL  PROPOSED 

cated,  both  (a)  and  (b)  being  strictly  limited 
according  to  section  13  of  this  Act. 

Co-operative   principle 

P  9.  By  the  term  "co-operative  principle"  is 
meant  co-ownership  and  operation  in  which  each 
member  has  only  one  vote  regardless  of  his  share- 
holdings, and  capital  is  limited  to  reasonable  in- 
terest, earnings  in  excess  thereof  being  appor- 
tionable  as  dividends  among  those  who  create  the 
profit. 

Veteran 

P  10.  The  term  "veteran"  means  any  indi- 
vidual, a  member  of  the  military  or  naval  forces 
of  the  United  States  in  the  war  with  Germany, 
the  war  with  Spain  or  in  suppression  of  the  in- 
surrection in  the  Philippines  and  honorably 
discharged  therefrom  or  placed  in  the  regular 
army  or  naval  reserve,  or  any  woman  who  was 
officially  enrolled  in  such  services  and  is  still 
in  such  service  or  honorably  discharged  there- 
from. 

FEDERAL  RURAL  CREDITS  BOARD 

P  1.  Section  2.  That  there  is  hereby  estab- 
lished at  the  seat  of  government  in  the  Depart- 
ment of  the  Treasury  a  bureau  charged  with  the 

150 


FOR  RURAL  CREDITS 

execution  of  this  Act  and  all  Acts  amendatory 
hereof,  to  be  known  as  the  Federal  Rural  Credits 
Bureau,  under  the  general  supervision  of  the 
Federal  Rural  Credits  Board. 

How  appointed 

P  2.  Said  Federal  Rural  Credits  Board  shall 
consist  of  five  members,  including  the  Secretary 
of  the  Treasury,  who  shall  be  a  member  and 
chairman  ex-ofRcio,  and  four  members  to  be  ap- 
pointed by  the  President  of  the  United  States,  by 
and  with  the  advice  and  consent  of  the  Senate. 
Of  the  four  members  to  be  appointed  by  the 
President,  not  more  than  two  shall  be  appointed 
from  one  political  party,  and  all  four  of  said  mem- 
bers shall  be  citizens  of  the  United  States. 

Qualifications 

P  3.  Each  member  of  the  board  shall  be  a  resi- 
dent in  and  fairly  representative  of  a  different 
geographical  region  of  the  United  States,  and  each 
of  them  shall  be  experienced  in  agriculture  and 
fi,nance.  Each  of  said  four  members  shall  receive 
an  annual  salary  of  $12,000  payable  monthly,  to- 
gether with  actual  and  necessary  traveling  ex- 
penses. Any  member  receiving  from  the  United 
States  any  salary  or  compensation  for  services 
shall  not  receive  a  salary  from  the  board  and 
Federal   Rural  Credits  Company   in  an   amount 

151 


THE  BILL  PROPOSED 

which,  together  with  such  salary  or  compensation 
from  the  United  States,  makes  the  total  amount 
of  such  salary  or  compensation  and  of  such  salary 
from  the  board  and  Company  exceed  $12,000. 
Each  member  shall  devote  his  entire  time  and  at- 
tention to  the  duties  of  the  board. 

Terms — superintendent 

P  4.  One  of  the  members  to  be  appointed  by 
the  President  shall  be  designated  by  him  to  serve 
for  two  years,  one  for  four  years,  one  for  six 
years  and  one  for  eight  years,  and  thereafter  each 
member  so  appointed  shall  serve  for  a  term  of 
eight  years,  unless  sooner  removed  for  cause  by 
the  President,  which  cause  shall  be  reported  to 
the  Senate.  One  of  the  members  shall  be  desig- 
nated by  the  President  as  superintendent,  and  he 
shall  be  the  active  executive  officer  of  said  board. 
Each  member  shall  within  15  days  after  notice  of 
his  appointment  take  and  subscribe  to  the  oath 
of  office. 

First  meeting 

P  5.  The  first  meeting  of  the  Federal  Rural 
Credits  Board  shall  be  held  in  Washington  as  soon 
as  may  be  after  the  passage  of  this  Act,  at  a  date 
and  place  to  be  fixed  by  the  Secretary  of  the 
Treasury. 

152 


FOR  RURAL  CREDITS 

Disinterested 

P  6.  No  member  of  the  board  shall  during  his 
continuance  in  office  be  an  officer  or  director  of 
any  other  institution,  association  or  partnership 
engaged  in  banking  or  finance.  Before  entering 
upon  his  duties  as  a  member,  he  shall  certify 
under  oath  to  the  President  that  he  is  eligible 
under  this  section. 

Vacancies 

P  7.  The  President  shall  have  power,  by  and 
with  the  advice  and  consent  of  the  Senate,  to  fill 
any  vacancy  occurring  in  the  membership  of  the 
board;  if  such  vacancy  shall  be  filled  during  the 
recess  of  the  Senate,  a  commission  shall  be  granted 
which  shall  expire  at  the  end  of  the  next  session. 

Custodian 

P  8.  The  Federal  Rural  Credits  board  shall  ap- 
point a  Custodian  for  each  Federal  Debenture 
Bank  to  receive  applications  for  issues  of  Federal 
debentures  and  to  perform  such  other  services  as 
are  prescribed  by  this  Act.  It  shall  appoint  as 
many  debenture  bank  appraisers  and  examiners 
as  it  shall  deem  necessary.  Said  Custodian,  ap- 
praisers and  examiners  shall  be  public  officials, 
and  shall,  during  their  continuance  in  office,  have 
no  connection  with  or  interest  in  any  other  insti- 
tution,   association    or    partnership    engaged   in 

153 


THE  BILL  PROPOSED 

banking  or  similar  business;  provided,  that  this 
hmitation  shall  not  apply  to  persons  temporarily- 
employed  by  the  board  to  do  special  work. 

Paid   by  United   States 

P  9.  The  salaries  and  expenses  of  the  Rural 
Credits  Board,  custodians,  appraisers  and  exam- 
iners authorized  under  this  section  shall  be  paid 
by  the  United  States. 

others  paid  by  company 

P  10.  The  board  shall  be  authorized  and  em- 
powered to  employ  such  attorneys,  experts,  assist- 
ants, clerks,  laborers  and  other  employees  as  it 
may  deem  necessary  to  conduct  the  business  of 
said  board.  All  salaries  and  fees  authorized  in 
this  section  and  not  otherwise  provided  for  shall 
be  fixed  in  advance  by  said  board,  and  shall  be 
paid  by  Federal  Rural  Credits  Company.  All  such 
attorneys,  experts,  assistants,  clerks,  laborers  and 
other  employees,  and  all  custodians,  examiners 
and  appraisers  shall  be  appointed  without  regard 
to  the  provisions  of  the  Act  of  January  16,  1883 
(Vol  22  U  S  statutes  at  large,  page  403),  and 
amendments  thereto,  or  any  rule  or  regulation 
made  in  pursuance  thereof. 

Reports 

P  11.  The  board  shall  annually  make  a  full 
report  of  its  full  operations  to  the  Speaker  of  the 

154 


FOR  RURAL  CREDITS 

House  of  Representatives  who  shall  cause  the 
same  to  be  printed  for  the  information  of  the 
Congress. 

Regulations 

P  12.  The  board  shall  have  power  to  prescribe 
all  necessary  rules  and  regulations  for  the  en- 
forcement of  the  provisions  and  for  carrying  out 
the  purposes  of  this  Act. 

Examinations 

P  13.  The  board  shall  from  time  to  time  re- 
quire examinations  and  reports  of  condition  of  all 
Federal  debenture  banks  or  federal  co-operative 
agricultural  associations  established  under  the 
provisions  of  this  Act,  and  shall  publish  con- 
solidated statements  of  the  results  thereof. 

other  bodies 

P  14.  The  board  may  require  similar  infor^ 
mation  from  live  stock  loan  companies  or 
cooperative  associations  incorporated  under 
state  law  before  approving  same  for  membei:- 
ship  in  any  debenture  bank. 

rW^^^^   T'  Quorum 

P  15.  Three  members  of  the  board  shall 
constitute  a  quorum  for  the  transaction  of  its 
business. 

166 


THE  BILL  PROPOSED 

POWERS    OF    FEDERAL    RURAL    CREDITS 

BOARD 
P  1.        Section   3.    That    the    Federal    Rural 
Credits  board  shall  have  power — 

Debenture   banks 

P  2.  (a)  To  organize  and  charter  Federal 
Debenture  Banks  subject  to  the  provisions  of  this 
Act. 

Fix  rates 

P  3.  (b)  To  establish,  review  and  alter  at  its 
discretion  the  rate  of  interest  vto  be  charged  by 
Federal  Debenture  Banks  or  by  co-operative  asso- 
ciations or  live  stock  loan  companies  for  loans  or 
advances  or  for  purchases  of  paper  made  by  them 
under  the  provisions  of  this  Act,  said  rates  to  be 
uniform  so  far  as  practicable. 

Debentures 

P  4.  (c)  To  grant  or  refuse  to  Federal  De- 
benture Banks  authority  to  make  any  specific  is- 
sue of  Federal  debentures. 

Regulations 

P  5.  (d)  To  make  rules  and  regulations  re- 
specting all  charges  made  for  or  in  connection 
with  business  transacted  under  this  Act. 
P  6.  (e)  To  prescribe  all  necessary  rules  and 
regulations  for  the  enforcement  of  the  provisions 
and  for  carrying  out  the  purposes  of  this  Act. 

156 


FOR  RURAL  CREDITS 

Examinations 

P  7.  (f )  To  require  reports  and  statements 
of  condition  and  to  make  examinations  of  all 
banks,  associations  or  corporations  doing  busi- 
ness under  the  provisions  of  this  Act,  other 
than  Federal  Co-operative  banks. 

Debentures — surety 

P  8.  (g)  To  describe  the  forms  and  terms  of 
Federal  debentures,  and  the  form,  terms  and 
penal  sums  of  all  surety  bonds  required  under  this 
Act,  and  ?11  such  other  surety  bonds  as  they 
shall  deem  necessary,  such  surety  bonds  to  cover 
financial  loss  as  well  as  faithful  performance  of 
duty. 

Supervision 

P  9.  (h)  To  exercise  general  supervisory 
authority  over  the  debenture  banks,  co-opera- 
tive associations  or  livestock  loan  companies 
herein  provided  for. 

Removals 

P  9.  (i)  To  suspend  or  to  remove  for  cause 
any  director,  official  or  employee  of  any  Federal 
Debenture  Bank,  or  any  Custodian,  or  examiner 
or  other  officers  appointed  by  said  board  under 
authority  of  this  Act,  the  cause  of  such  suspension 
or  removal  to  be  communicated  in  writing  to  the 
board  by  the  person  suspended,  and  in  case  of  a 

157 


THE  BILL  PROPOSED 

debenture  bank  director,  officer  or  employee,  to 
the  said  bank;  and  to  remove  incompetent  or 
dishonest  officials  of  any  federal  co-operative 
agricultural  association  incorporated  here- 
under. 

other  powers 

P  10.  (j)  To  exercise  such  incidental  powers 
as  shall  be  necessary  or  requisite  to  fulfill  its  du- 
ties and  carry  out  the  purposes  of  this  Act. 

FEDERAL  RURAL  CREDITS  COMPANY 

Name 

Section  4.  That  the  Secretary  of  the  Treasury 
and  the  other  four  members  of  the  Federal  Rural 
Credits  board  hereby  are  created  by  a  body  corpo- 
rate and  politic  in  deed  and  in  law  by  the  name  of 
"Federal  Rural  Credits  Company,"  hereinafter 
referred  to  as  the  Company.  This  coporation  shall 
have  succession  until  dissolved  by  Act  of  Con- 
gress. 

Capital 

P  1.  Section  5.  That  the  original  capital 
stock  of  the  Company  shall  be  $500,000,000  divid- 
ed into  shares  of  a  par  value  $100  each,  all  of 
which  shall  be  subscribed  by  the  United  States  of 
America  and  paid  for  and  reduced  by  the  retire- 
ment of  capital  stock  of  the  War  Finance  Corpo- 

158 


FOR  RURAL  CREDITS 

ration,  and  the  transfer  and  liquidation  of  its  as- 
sets in  the  following  manner : 

Liquidates  war  finance  corporation 

P  2.  The  War  Finance  Corporation,  within 
ninety  days  from  the  date  upon  which  the  Com- 
pany hereby  created  is  authorized  by  the  Pi'esi- 
dent  to  commence  business,  shall,  after  depositing 
with  the  Treasurer  of  the  United  States  a  sum 
sufficient  to  retire  all  outstanding  obligations  of 
the  War  Finance  Corporation  and  making  pro- 
vision for  the  payment  of  any  and  all  other  liabil- 
ities, transfer  and  deliver  to  the  corporation  here- 
by created  all  of  the  assets,  of  every  kind  and  de- 
scription, belonging  to  or  held  by  or  for  account 
of  the  War  Finance  Corporation,  including  all 
moneys  on  deposit  with  the  Treasurer  of  the  Unit- 
ed States  or  other  depository,  all  bills,  notes, 
drafts,  and  other  evidences  of  debt,  and  all  secu- 
rities and  property  of  every  kind  and  description, 
including  office  furniture,  equipment,  fixtures  and 
supplies,  wherever  situated,  which  said  assets 
shall  forthwith  be  and  become  the  property  of  said 
Company. 

Successor 

P  3.  The  War  Finance  Corporation  having 
paid  or  provided  for  all  its  outstanding  liabilities 

159 


THE  BILL  PROPOSED 

and  transferred  all  its  assets  as  hereinbefore  pro- 
vided, the  entire  capital  stock  of  the  War  Finance 
Corporation  held  by  the  United  States,  amounting 
to  $500,000,000,  shall  thereupon  be  retired  and 
canceled,  and  simultaneously  the  corporation 
hereby  created  shall  issue  with  the  retirement  and 
cancellation  of  the  capital  stock  of  the  War 
Finance  Coporation  its  capital  stock  in  an  equal 
aggregate  amount  in  the  name  of  the  United 
States  and  deliver  the  same  to  the  Secretary  of 
the  Treasury,  who  shall  have  power  on  behalf  of 
the  United  States  to  assign  and  transfer  such  cer- 
tificates in  the  manner  and  for  the  purpose  pro- 
vided by  this  Act. 

Powers — privileges 

P  4.  All  assets  so  transferred  to  the  Federal 
Rural  Credits  Company  shall  be  taken  up  on  its 
books  at  the  value  at  which  such  assets  are  carried 
on  the  books  of  the  War  Finance  Corporation  and 
the  amount  by  which  such  assets  exceed  $500,000,- 
000  shall  be  carried  into  the  surplus  fund  of  the 
Company.  In  the  liquidation  of  such  assets  the 
Company  shall  succeed  to  and  be  vested  with  all 
the  powers,  rights,  and  privileges  of  the  War 
Finance  Corporation. 

Capital  reduced 

P  5.        When  the  Company  has  received  the  sum 

160 


FOR  RURAL  CREDITS 

of  $250,000,000,  either  upon  the  transfer  of  the 
cash  assets  or  from  the  liquidation  of  other  assets, 
all  further  sums  received  as  a  result  of  the  trans- 
fer to  it  of  the  assets  of  the  War  Finance  Corpo- 
ration shall  be  carried  into  a  special  account  and 
deposited  with  the  Treasurer  of  the  United  States 
and  from  time  to  time  applied  to  the  retirement 
of  the  capital  stock  of  the  corporation  held  by  the 
United  States  until  the  stock  so  held  by  the  Unit- 
ed States  shall  be  reduced  to  $250,000,000.  Pro- 
vided, however,  that  the  entire  capital  stock  of  the 
corporation  shall  at  no  time  be  reduced  to  an 
amount  less  than  $250,000,000.  All  sums  paid  to 
the  Treasurer  of  the  United  States  in  retirement 
of  the  capital  stock  of  the  corporation  shall  be  cov- 
ered into  the  general  fund  of  the  Treasury  as  mis- 
cellaneous receipts. 

P  6.  That  the  principal  office  of  the  corpora- 
tion shall  be  located  in  the  District  of  Columbia, 
but  agencies  or  branch  offices  may  be  established 
as  hereinafter  provided  or  under  rules  and  regula- 
tions prescribed  by  the  board  of  directors. 

POWERS  OF  COMPANY 
P  1.        Section  6.    That  the  Company  shall  have 
power,  subject  to  the  limitations  prescribed  by 
this  Act — 

161 


THE  BILL  PROPOSED 

By-laws 

P  2.  (a)  To  prescribe  by  its  board  of  direc- 
tors by-laws  regulating  the  manner  in  which  its 
general  business  may  be  conducted  and  the  privi- 
leges granted  to  it  by  law  may  be  exercised  and 
enjoyed. 

Powers 

P  3.  (b)  To  exercise  by  its  board  of  direc- 
tors or  duly  authorized  officers  or  agents  all 
powers  specifically  granted  by  the  provisions  of 
this  Act,  and  such  incidental  powers  as  shall  be 
necessary  to  carry  on  the  business  for  which  it  is 
incorporated,  within  the  limitations  prescribed 
by  this  Act. 

Capital  In  debenture  banks 

P  4.  (c)  To  invest  its  capital  in  shares  at 
par  of  any  Federal  Debenture  Bank  as  defined  by 
this  Act  at  the  rate  of  $1,000  for  each  million 
dollars  of  value  of  all  farm  property  within  the 
state  for  which  said  bank  is  established,  as  shown 
by  the  fourteenth  census  of  the  United  States,  and 
to  purchase  debenture  issued  by  any  such  bank  or 
make  advances  or  loans  thereto.  Provided,  that 
in  any  state  wherein  such  total  value  of  all  farm 
property  is  under  $500,000,000,  the  Company 
shall  invest  its  capital  in  said  shares  to  the 
amount  of  $500,000 ;  except,  that  in  any  State 

162 


FOR  RURAL  CREDITS 

where  such  values  total  less  than  $100,000,000 
said  investment  shall  be  $100,000. 

Discounts 

P  5.  (d)  Upon  the  indorsement  of  any  Fed- 
eral Debenture  Bank,  which  indorsement  shall  be 
deemed  a  waiver  of  demand,  notice,  and  protest 
by  such  bank  as  to  its  own  indorsement,  to  dis- 
count notes,  drafts,  bills  of  exchange  or  other  evi- 
dences of  debt  representing  agricultural  loans  or 
live  stock  paper,  commodity  paper  or  real  estate 
obligations  as  defined  by  this  Act. 

Buying  paper 

P  6.  (e)  To  purchase  in  the  open  market  or 
otherwise  from  any  cooperative  association  in- 
corporated hereunder,  or  from  any  agricultural 
co-operative  association  or  live  stock  loan  com- 
pany incorporated  under  the  laws  of  any  state 
and  approved  by  Federal  Rural  Credits  Board, 
live  stock  paper,  agricultural  loans,  commodity 
paper  or  real  estate  obligations  as  defined  in 
this  Act  bearing  proper  indorsement  or  to  make 
loans  on  promissory  notes  of  incorporated  co- 
operative associations  secured  by  commodity 
paper. 

Buys  Bonds 

P  7.         (f )     To  subscribe  for,  acquire,  and  own, 

163 


THE  BILL  PROPOSED 

buy,  sell,  and  otherwise  deal  in  the  bonds  and 
other  obligations  of  the  United  States,  or  Federal 
Farm  Loan  bonds  to  such  extent  as  the  directors 
from  time  to  time  may  determine. 

Agencies 

P  8.  (g)  To  establish  agencies  in  any  city  or 
cities  of  the  United  States  under  rules  and  regu- 
lations prescribed  by  the  directors. 

Reserve  discounts 

P  9.  (h)  To  discount  with  any  Federal  Re- 
serve bank  paper  eligible  for  rediscount  under  the 
Federal  Reserve  Act  and  owned  or  issued  by 
the  Company. 

U.  S.  depository 

P  10.  (i)  To  act,  upon  request  of  the  Secre- 
tary of  the  Treasury,  as  depository  of  funds  be- 
longing to  the  United  States  Government  and  to 
perform  any  other  service  as  fiscal  agent  of  the 
United  States. 

Guarantee 

P  11.  To  guarantee  the  principal  and  interest 
of  Federal  Debenture  bonds  issued  pursuant  to 
this  Act  as  specified  in  Section  16  hereof. 

Sell  certificates 

P  12.  To  issue  and  sell  its  notes  or  certifi- 
cates of  indebtedness  in  an  amount  not  to  ex- 

164 


FOR  RURAL  CREDITS 

ceed  the  sum  required  to  enable  it  to  fulfill  the 
provisions  of  Section  Seven  hereof. 

Temporary  powers 

P  13.  For  a  period  of  six  months  after  the 
President  has  authorized  the  Company  to  com- 
mence business  said  Company,  subject  to  condi- 
tions and  limitations  contained  in  this  Act  which 
apply  to  transactions  with  Federal  Debenture 
Banks  and  under  such  rules  and  regulations  as 
the  directors  may  prescribe,  shall  have  power  to 
purchase  or  rediscount  notes,  drafts,  bills  of  ex- 
change and  other  evidences  of  debt  for,  and  to 
make  loans  and  advances  to  banks  and  to  corpo- 
rations of  the  character  referred  to  in  this  Act 
which  have  not  become  member  corporations: 
Provided,  however,  that  all  such  rediscounts,  loans 
and  advances  and  all  renewals  thereof  shall  ma- 
ture within  a  period  of  one  year  from  the  date  of 
the  passage  of  this  Act,  and  from  and  after  the 
expiration  of  said  six  months'  period  no  renewals 
shall  be  granted  and  no  rediscounts,  loans  or  ad- 
vances shall  be  made  except  as  provided  in  this 
Act. 

EXPORT  CREDITS 

Abnormal  surplus 

P  1.        Section  7.     That  whenever  the  board  of 

165 


THE  BILL  PROPOSED 

directors  of  the  Company  shall  be  of  the  opinion 
that  general  business  conditions  have  resulted  in 
or  may  result  in  an  abnormal  surplus  accumula- 
tion of  any  staple  agricultural  product  of  the 
United  States  or  lack  of  remunerative  market  for 
the  sale  of  the  same  or  that  the  ordinary  banking 
facilities  are  inadequate  to  enable  producers  of  or 
dealers  in  such  products  to  carry  them  until  they 
can  be  manufactured,  processed,  exported  or  sold 
for  export  in  an  orderly  manner,  the  Company 
shall  thereupon  be  empowered  to  make  advances, 
for  periods  not  exceeding  one  year  from  the  re- 
spective dates  of  such  advances,  upon  such  terms, 
not  inconsistent  with  this  Act,  as  it  may  deter- 
mine; 

Advances,  domestic 

P  2.  (a)  To  any  person  engaged  in  the  Unit- 
ed States  in  producing,  dealing  in,  or  marketing 
any  such  products,  or  to  any  incorporated  co-oper- 
ative association  engaged  in  producing  or  mar- 
keting such  products,  for  the  purpose  of  assisting 
such  person  or  association  to  carry  such  products 
until  they  can  be  manufactured  or  processed  or 
sold  for  domestic  consumption  or  for  export  in  an 
orderly  manner.  Any  such  advance  shall  bear 
interest  at  a  rate  not  exceeding  1  per  centum  in 

166 


FOR  RURAL  CREDITS 

excess  of  the  discount  rate  for  six  months  agri- 
cultural paper  prevailing  at  the  Federal  reserve 
bank  of  the  district  in  which  the  borrower  is  lo- 
cated at  the  time  the  advance  is  made  and  shall 
be  secured  by  adequate  security  of  such  charac- 
ter as  shall  be  prescribed  by  the  directors.  The 
Company  shall  retain  the  power  to  recall  any  such 
advance  or  to  require  additional  security  at  any 
time. 

Advances,  foreign 

P  14.  (b)  To  any  person  without  the  United 
States  purchasing  such  products,  but  in  no  case 
shall  any  of  the  money  so  advanced  be  expended 
without  the  United  States.  Every  such  advance 
shall  be  secured  by  adequate  security  of  char- 
acter to  be  prescribed  by  the  directors.  The 
rate  of  interest  charged  on  any  such  advance  shall 
be  determined  by  the  directors.  The  Company 
shall  retain  the  power  to  recall  any  such  advance 
or  to  require  additional  security  at  any  time. 

Advances  to  bank 

P  15.  (c)  To  any  bank,  banker,  or  trust  com- 
pany in  the  United  States  which  makes  or  has 
made  an  advance  or  advances  to  any  such  person 
as  is  described  in  paragraph  (a)  of  this  section 
for  the  purpose  therein  set  forth  or  which  makes 

167 


THE  BILL  PROPOSED 


or  has  made  an  advance  or  advances  to  any  pro- 
ducer for  the  purpose  set  forth  in  paragraph  (a) . 
The  aggregate  of  the  advances  made  to  any  bank, 
banker,  or  trust  company  shall  not  exceed  the 
amount  remaining  unpaid  of  the  advances  made 
by  such  bank,  banker,  or  trust  company  for  the 
purposes  herein  described.  Such  advances  shall 
bear  interest  at  rates  determined  by  the  directors. 

P  16.  (d)  The  aggregate  of  all  such  ad- 
vances or  of  securities  purchased  pursuant  to 
this  Section  shall  not  at  any  time  exceed  $500,- 
000,000. 

Security 

Sec.  8.  PI.  That  all  advances  made  under 
section  seven  of  this  Act  shall  be  made  against 
promissory  note  or  notes,  or  other  instrument  or 
instruments  in  writing,  imposing  on  the  borrower 
a  primary  and  unconditional  obligation  to  repay 
the  advance  at  maturity,  with  interest  as  stipu- 
lated therein,  with  full  and  adequate  security  in 
each  instance  by  indorsement,  guaranty,  pledge, 
or  otherwise.  The  Company  shall  retain  the  power 
to  require  additional  security  at  any  time. 

How  payable 

P  2.  All  notes  or  other  instruments  evidenc- 
ing  advances  to   persons  outside  of   the  United 

168 


FOR  RURAL  CREDITS 

States  shall  be  in  terms  payable  in  the  United 
States  in  gold  or  currency  of  the  United  States 
and  shall  be  secured  by  adequate  guaranties  or  in- 
dorsements in  the  United  States,  or  by  warehouse 
receipts,  acceptable  collateral,  or  other  instru- 
ments in  writing  conveying  marketable  title  to 
agricultural  products  in  the  United  States,  all 
under  rules  and  regulations  to  be  approved  by 
Federal  Rural  Credits  Board. 

FEDERAL  DEBENTURE  BANKS 

One  in  each  state 

P  1.  Section  9.  One  Federal  Debenture  Bank 
may  be  organized  in  each  state  by  the  Federal 
Rural  Credits  Board.  The  initial  capital  of  said 
bank  shall  be  an  amount  equal  to  $1,000  for  each 
one  million  dollars  of  total  value  of  all  farm  prop- 
erty in  said  state,  as  shown  by  the  fourteenth  cen- 
sus of  the  United  States.  Such  initial  capital 
shall  not  be  increased  or  decreased,  but  may 
be  replaced  as  hereinafter  set  forth.  Provided 
that  in  any  State  wherein  such  total  value  is  un- 
der $500,000,000,  the  Company  shall  invest 
said  shares  to  the  amount  of  $500,000,  except 
that  in  any  State  wherein  such  values  total  less 
than  $100,000,000  said  investment  shall  be 
$100,000. 

169 


I 


THE  BILL  PROPOSED 

Initial  shares 

P  2.  The  shares  representing  the  initial  capi- 
tal shall  be  of  a  par  value  of  $100  each,  all  of 
which  shall  be  subscribed  and  paid  for  in  cash 
by  Federal  Rural  Credits  Company,  which  shall 
have  one  vote  for  each  of  said  shares  it  holds. 

Title 

P  3.  There  shall  be  only  one  Federal  Deben- 
ture Bank  in  each  state  of  the  United  States,  the 
name  of  which  shall  include  the  name  of  the  state, 
together  with  the  words  "Federal  Debenture 
Bank,"  and  it  shall  not  be  lawful  for  those  words 
to  be  used  in  any  other  title  under  penalty  of 
$1000  for  each  day  during  which  such  violation 
is  committee  or  repeated. 

Temporary  directors 

P  4.  Each  Federal  debenture  bank  shall  be 
managed  temporarily  by  five  directors  appointed 
by  the  Federal  Rural  Credits  board.  Said  direc- 
tors shall  be  citizens  of  the  United  States  and 
residents  of  the  State.  They  shall  give  a  surety 
bond,  the  premium  on  which  shall  be  paid  from 
the  funds  of  the  bank.  They  shall  receive  such 
compensation  as  the  Rural  Credits  Board  may  fix, 
payable  by  such  bank.  They  shall  choose  from 
their  number,  by  majority  vote,  a  president,  a 

170 


FOR  RURAL  CREDITS 

vice-president,  a  secretary  and  a  treasurer.  They 
are  further  authorized  and  empowered  to  employ 
such  attorneys,  experts,  assistants,  clerks,  labor- 
ers and  other  employees  as  they  may  deem  neces- 
sary, and  to  fix  their  compensation,  subject  to  the 
approval  of  the  Federal  Rural  Credits  board. 

Application 

P  5.  Said  temporary  directors  shall  forthwith 
under  their  hands  apply  for  a  charter  to  the  Fed- 
eral Rural  Credits  board  in  an  organization  cer- 
tificate which  shall  specifically  state: 
P  6.  (a)  The  name  assumed  in  such  bank. 
P  7.  (b)  The  amount  of  its  initial  capital 
stock  and  the  number  of  shares  into  which  the 
same  is  to  be  divided. 

P  8.  (c)  The  fact  that  the  certificate  is 
made  to  enable  such  persons  to  enable  themselves 
of  the  advantages  of  this  Act.  Such  certificate 
shall  be  acknowledged  before  a  judge  or  clerk  of 
some  record  or  notary  public  and  together  with 
the  acknowledgment  thereof,  by  the  seal  of  such 
court  or  notary,  shall  be  transmitted  to  the  Su- 
perintendent of  Federal  Rural  Credits  Board 
who  shall  record  and  carefully  preserve  the 
same  in  his  office,  where  it  shall  be  at  all  times 
open  to  public  inspection. 

171 


THE  BILL  PROPOSED 


Charter 

P  9.  When  the  application  has  been  approved, 
the  Federal  Rural  Credits  Board  shall  issue  a 
charter  for  such  debenture  bank  whereupon  it 
shall  become,  as  from  the  date  thereof,  a  body- 
corporate,  and  as  such  and  in  the  name  desig- 
nated in  its  charter,  shall  have  power — 
P  10.  (1)  To  adopt  and  use  a  corporate  seal. 
P  11.  (2)  To  have  succession  until  it  is  dis- 
solved by  Act  of  Congress  or  under  the  provisions 
of  this  Act. 

P  12.         (3)     To  make  contracts. 
P  13.        (4)     To  sue  and  be  sued,  complain,  in- 
terplead,   and    defend,   in   any  court   of   law  or 
equity,  as  fully  as  natural  persons. 

Directors,  officers 

P  14.  (5)  To  elect  or  appoint  directors,  and 
by  its  board  of  directors  to  elect  a  president  and  a 
vice  president,  appoint  a  secretary  and  a  treas- 
urer and  other  officers  and  employees,  define  their 
duties,  require  bonds  of  them,  and  fix  the  penalty 
thereof;  by  action  of  its  board  of  directors  dis- 
miss such  officers  and  employees,  or  any  of  them, 
at  pleasure  and  appoint  others  to  fill  their  places. 

By-laws 

P  15.  (6)  To  prescribe,  by  its  board  of  di- 
rectors, subject  to  the  supervision  and  regulation 

172 


FOR  RURAL  CREDITS 

of  the  Federal  Rural  Credits  Board,  by-laws  not 
inconsistent  with  law,  regulating  the  manner  in 
which  its  stock  shall  be  transferred,  its  directors 
elected,  its  officers  elected  or  appointed,  its  prop- 
erty transferred,  its  general  business  conducted, 
and  the  privileges  granted  to  it  by  law  exercised 
and  enjoyed. 

Incidental  powers 

P  16.  (7)  To  exercise,  by  its  board  of  direc- 
tors or  duly  authorized  officers  or  agents,  subject 
to  law,  all  such  incidental  powers  as  shall  be  nec- 
essary to  carry  on  the  business  herein  described. 

Action  by  state 

P  17.  Provided  that  no  Federal  Debenture 
Bank  shall  begin  business  in  any  State  until  said 
State  by  act  of  its  Legislature  shall  have  decreed 
that  the  debentures  issued  by  such  banks  shall 
be  a  legal  investment  for  all  funds  administered 
by  courts,  trustees,  savings  banks,  state  banks, 
trust  companies  or  other  corporations  incorpo- 
rated under  laws  of  said  state  or  doing  business 
therein;  provided  further,  that  the  State  shall 
agree  to  buy  at  par  with  the  state's  funds  the  first 
debentures  issued  by  said  bank  to  an  amount  not 
to  exceed  the  initial  capital  thereof  paid  up  by  the 
Federal   Rural    Credits    Company,  and   further 

173 


THE  BILL  PROPOSED 

agrees  to  have  not  less  than  that  sum  constantly 
invested  in  said  debentures.  When  the  state  shall 
have  taken  such  action  the  board  of  directors  of 
the  Federal  Debenture  Bank  therein  shall  be  in- 
creased to  seven  members,  the  additional  two 
members  being  appointed  by  the  Governor  of  the 
state  or  otherwise  as  its  legislature  may  direct 
and  shall  serve  until  the  permanent  organization 
is  effected. 

Permanent  directors 

P  18.  After  said  debenture  bank  shall  have 
been  in  operation  for  not  less  than  two  consecu- 
tive years,  a  permanent  board  of  seven  directors 
shall  be  selected  in  the  following  manner:  four 
of  such  directors  shall  be  known  as  Federal  direc- 
tors, and  shall  be  chosen  by  Federal  Rural 
Credits  Board  as  representative  of  the  na- 
tional interest  which  has  supplied  the  initial 
capital.  Of  these  Federal  directors,  one  shall 
be  chosen  for  one  year,  another  for  two 
years,  a  third  for  three  years  and  the  fourth 
for  four  years ;  thereafter  their  term  of  office  shall 
be  four  years.  The  remaining  three  shall  be 
known  as  state  directors.  One  of  them  shall  be 
appointed  by  the  governor  or  as  the  state  legis- 
lature may  direct  and  be  representative  of  the 

174 


FOR  RURAL  CREDITS 

state's  interest  invested  in  the  bank's  deben- 
tures. The  remaining  two  directors  shall  be 
chosen  by  and  be  representative  of  the  member 
shareholders,  one  serving  for  two  years  and  the 
other  for  three  years.  Vacancies  that  may  oc- 
cur in  the  Federal  directors  shall  be  filled  for 
the  unexpired  term  by  the  Rural  Credits  Board, 
in  other  cases  by  the  governor  of  the  state. 

Qualifications 

P  19.  Each  director  must  have  been  for  at 
least  two  years  resident  of  the  State  for  which  he 
is  appointed  or  elected,  and  at  least  one  Federal 
director  shall  be  experienced  in  practical  farming 
and  actually  engaged  at  the  time  of  his  appoint- 
ment in  farming  operations  within  the  State.  No 
director  of  a  federal  debenture  bank  shall,  during 
his  continuance  in  office,  act  as  an  officer,  director 
or  employee  of  any  other  institution,  association 
or  partnership  engaged  in  banking,  or  in  farm 
finance. 

Compensation 

P  20.  Directors  shall  receive,  in  addition  to 
any  compensation  otherwise  provided,  a  reason- 
able allowance  for  necessary  expenses  in  attend- 
ing meetings  of  their  respective  boards,  subject 
to  the  approval  of  the  Federal  Rural  Credits 
Board. 

175 


THE  BILL  PROPOSED 

Not  jointly  liable 

P  21.  The  Federal  Debenture  Bank  in  each 
state  shall  be  liable  for  its  own  obligations  exclu- 
sively, and  is  exempted  specifically  from  any  and 
all  liability  for,  to  or  on  account  of  any  other 
debenture  bank. 

MEMBERSHIP  IN  DEBENTURE  BANKS 

Banks  as  members 

P  1.  Section  10.  Any  national  or  state  bank 
or  trust  company  may  become  a  member  of  the 
debenture  bank  for  its  state  by  investing  at  par 
in  the  shares  thereof  a  sum  equal  to  the  amount 
required  for  its  membership  in  the  Federal  Re- 
serve Bank  of  its  district. 

Co-operative  banks 

P  2.  Each  Federal  Co-operative  Bank  shall  be- 
come a  member  of  the  Federal  Debenture  Bank 
for  its  state  by  investing  at  par  in  the  shares 
thereof  a  sum  equal  to  ten  percent  of  the  paid 
up  capital  of  said  ban.k. 

Co-operative  association 

P  3.  Each  co-operative  agricultural  asso- 
ciation incorporated  under  this  Act  shall  be- 
come a  member  of  the  Federal  Debenture  Bank 
for  the  state  in  M^hich  it  is  domiciled  by  invest- 
ing at  par  in  the  shares  thereof  a  sum  fairly 

176 


FOR  RURAL  CREDITS 

relative,  in  view  of  the  volume  of  the  business 
of  such  association,  to  the  amount  that  this  Act 
requires  Federal  Co-operative  Banks  to  invest 
in  said  shares,  all  as  may  be  prescribed  by  Fed- 
eral Rural  Credits  Board.  Any  agricultural  co- 
operative association  or  live  stock  loan  com- 
pany incorporated  under  the  laws  of  any  state 
may  become  a  member  of  the  debenture  bank 
for  its  state,  upon  a  similar  basis  by  agreeing 
at  the  same  time  to  abide  by  the  terms  of  this 
Act  and  of  all  rules  and  regulations  made  pur- 
suant to  this  Act.  Such  regulations  shall  pre- 
scribe for  increases  or  decreases  in  the  holdings 
of  said  shares  by  co-operative  associations  or 
live  stock  loan  companies  upon  a  basis  fairly 
relative  to  such  increases  or  decreases  by  Fed- 
eral Co-operative  Banks. 

Member  capital 

P  4.  The  member  capital  of  a  Federal  Deben- 
ture Bank  shall  consist  of  shares  of  a  par  value 
of  $5  each,  subscribed  and  paid  for  by  its  mem- 
ber institutions,  each  of  which  shall  have  one  vote 
in  the  shareholders  meetings  regardless  of  the 
number  of  shares  owned.  Members  shall  be  liable 
for  the  debts  of  the  bank  only  to  the  amount  of 
their  investment  in  its  shares. 

177 


THE  BILL  PROPOSED 

Increases 

P  5.  When  a  member  of  any  Federal  Deben- 
ture Bank  increases  its  capital  stock,  it  thereupon 
shall  subscribe  to  an  additional  amount  of  the 
capital  stock  of  the  debenture  bank  in  the  same 
proportion  that  it  subscribed  originally  to  said 
capital  stock,  such  subscription  to  be  paid  upon 
call  of  the  directors  of  the  debenture  bank.  Mem- 
bers who  join  the  Federal  Debenture  Bank  after 
the  organization  thereof  must  subscribe  for  an 
amount  of  said  capital  stock  the  same  as  though 
they  had  joined  a  the  time  of  organization,  plus 
one-half  or  one  per  centum  per  month  from  the 
period  of  the  last  dividend  of  said  debenture  bank. 

Decreases 

P  6.  When  the  capital  stock  of  a  debenture 
bank  shall  have  been  increased,  either  on  account 
of  the  increase  of  the  capital  stock  of  its  members 
or  on  account  of  the  increase  in  the  number  of  its 
members,  the  board  of  directors  shall  cause  to  be 
executed  a  certificate  to  the  Federal  Rural  Credits 
Board  showing  the  increase  in  capital  stock,  the 
amount  paid  in  and  by  whom  paid. 

Surrenders 

P  7.  Whenever  any  member  of  a  federal  mem- 
ber bank  reduces  its  capital  stock,  it  shall  sur- 
render a  proportionate  amount  of  its  holdings  in 

178 


FOR  RURAL  CREDITS 

the  capital  stock  of  said  bank,  and  whenever  any 
member  voluntarily  liquidates,  such  member  shall 
surrender  all  of  its  holdings  therein,  in  either  case 
receiving  the  book  value  thereof. 

Retire  initial  capital 

P  8.  When  the  surplus  of  any  debenture  bank 
equals  fifty  per  centum  of  its  then  total  capital, 
its  initial  capital  shall  be  retired  by  the  purchase 
at  par  of  its  initial  shares  from  the  Secretary  of 
the  Treasury,  who  thereupon  shall  cancel  the 
same.  Such  purchase  shall  be  made  with  funds 
thereafter  received  from  accretions  of  member 
capital  and  from  earnings  as  stated  in  Section 
twenty. 

Retire  federal  director 

P  9.  When  not  less  than  fifty  per  centum  of 
the  initial  capital  of  any  debenture  bank  shall 
thus  have  been  replaced,  the  place  shall  be 
declared  vacant  of  the  Federal  director  (other 
than  the  Custodian)  whose  term  is  nearest 
to  expiry,  and  the  vacancy  shall  be  filled  by  vote 
of  the  members.  When  not  less  than  one-half 
of  the  remaining  initial  capital  shall  have  been 
replaced  by  member  capital,  another  Federal  di- 
rector shall  be  retired  and  replaced  in  like  manner. 
When  all  of  the  initial  capital  shall  have  been  re- 
placed, one  of  the  remaining  two  Federal  directors 

179 


THE  BILL  PROPOSED 

shall  be  retired  and  replaced  in  like  manner.  Pro- 
vided, however,  that  the  Federal  directors  thus 
retired  shall  in  no  case  be  the  Custodian ;  that  at 
all  times  the  debenture  bank  shall  continue  under 
the  general  supervision  of  Federal  Rural  Credits 
Board,  and 

No  impairment 

P  10.  That  at  no  time  shaU  the  total  capital 
and  surplus  of  any  debenture  bank  be  less  than 
the  figure  at  which  this  total  stood  at  the  begin- 
ning of  the  retirement  of  initial  capital. 

FEDERAL  CUSTODIAN 

Chairman,  custodian 

P  1.  Section  11.  One  of  the  directors  in  each 
Federal  Debenture  Bank  appointed  by  the  Federal 
Rural  Credits  Board  shall  be  designated  as  chair- 
man of  the  board  of  directors  and  shall  perform 
the  duties  of  the  Federal  custodian  prescribed  by 
this  Act. 

Office,  salary 

P  2.  Such  Custodian  shall  be  furnished  with 
suitable  office  and  vault  facilities  on  the  premises 
of  each  Federal  Debenture  Bank,  and  with  the 
approval  of  the  Federal  Rural  Credits  Board  shall 
be  authorized  to  employ  such  counsel,  assistants 
and  clerical  force  as  may  be  necessary.    The  sala- 

180 


FOR  RURAL  CREDITS 

ries  or  compensation  of  all  persons  so  appointed 
shall  be  paid  by  the  Federal  Debenture  Bank  in 
which  they  are  employed. 

Represents  company 

P  3.  In  addition  to  his  duties  as  chairman  of 
the  board,  the  Custodian  shall  be  the  representa- 
tive of  the  Federal  Rural  Credits  Company  for 
the  state  in  which  the  debenture  bank  is  located. 

POWERS  OF  FEDERAL  DEBENTURE  BANKS 

Section  12.  Every  Federal  Debenture  Bank 
shall  have  power,  subject  to  the  requirements  and 
limitations  of  this  Act — 

Issue  of  debenture 

First.  To  issue,  subject  to  the  approval  of  Fed- 
eral Rural  Credits  Board,  and  to  sell  its  own  deben- 
tures of  the  kinds  authorized  in  this  Act,  to  buy 
the  same  for  its  own  account  and  to  retire  the 
same  at  or  before  maturity. 

Investment 

Second.  To  invest  such  funds  as  may  be  in  its 
possession  in  the  debentures  issued  by  other  Fed- 
eral Debenture  banks  or  in  mortgages  as  de- 
scribed in  Section  13  hereof. 

Discount 

Third.  Upon  the  indorsement  of  any  Federal 
Debenture  bank,  national  bank.  Federal  co-opera- 

181 


THE  BILL  PROPOSED 

tive  bank,  state  bank  or  trust  company,  which 
indorsement  shall  be  deemed  a  waiver  of  demand, 
notice  and  protest  of  such  bank  as  to  its  own  in- 
dorsement, to  discount  notes,  drafts,  bills  of  ex- 
change, acceptances  or  other  evidences  of  debt 
representing  agricultural  loans,  livestock  paper, 
commodity  paper  or  real  estate  mortgage  obliga- 
tions as  defined  by  this  Act. 

Purchase  of  paper 

Fourth.  To  purchase  in  the  open  market  or 
otherwise  from  any  Federal  or  approved  co-op- 
erative association,  or  approved  livestock  loan 
company,  agricultural  loans,  livestock  paper, 
commodity  paper  or  real  estate  obligations  de- 
fined in  this  Act,  bearing  proper  indorsement, 
or  to  make  loans  on  promissory  notes  of  incor- 
porated co-operative  associations  secured  by 
commodity  paper,  livestock  paper,  agricultural 
loans  or  real  estate  obligations. 

Deals  in  U.  S.  bonds 

Fifth.  To  subscribe  for,  acquire,  own,  sell  and 
otherwise  deal  in  the  bonds  and  other  obligations 
of  the  United  States,  or  Federal  farm  loan  bonds, 
to  such  extent  as  the  directors  from  time  to  time 
may  determine. 

Rediscounts  with  reserve 

Sixth.    To  rediscount  with  any  Federal  Reserve 

182 


FOR  RURAL  CREDITS 

bank  paper  eligible  for  rediscount  under  the  Fed- 
eral Reserve  Act  and  owned  by  the  Debenture 
bank. 

U.  S.  depository 

Seventh.  To  act,  upon  request  of  the  Secretary 
of  the  Treasury,  as  depository  of  funds  belonging 
to  the  United  States  government,  and  to  perform 
any  other  service  as  fiscal  agent  of  the  United 
States. 

Securities 

Eighth.  To  receive  and  to  deposit  in  trust  with 
the  Custodian,  to  be  held  by  him  as  collateral 
security  for  debentures,  agricultural  loans,  live- 
stock paper,  commodity  paper,  and  or  real  estate 
obligations,  and  to  hold  or  release  the  same  as 
provided  in  this  Act. 

Real  estate  for  own  use 

Ninth.  To  acquire  and  dispose  of — 
(a)  Such  property,  real  or  personal,  as  may  be 
necessary  or  convenient  for  the  transaction  of  its 
business,  which,  however,  may  be  in  part  leased 
to  others  for  revenue  purposes ;  provided  that  no 
debenture  bank  may  invest  in  such  real  estate 
a  sum  in  excess  of  5%  of  its  capital,  except  with 
the  consent  in  writing  of  Federal  Rural  Credits 
Board. 

183 


THE  BILL  PROPOSED 

other  real  estate 

(b)  Parcels  of  land  acquired  in  satisfaction  of 
its  purchase  of  debts  or  purchase  at  sales  under 
judgments,  decrees  or  mortgages  held  by  it.  But 
no  such  bank  shall  hold  title  and  possession  of  any- 
real  estate  purchased  or  acquired  to  secure  any 
debt  due  to  it,  for  a  longer  period  than  five  years, 
except  with  the  special  approval  in  writing  of 
Federal  Rural  Credits  Board. 

May  deposit 

Tenth.  To  deposit  its  securities  and  its  current 
funds  subject  to  check  with  any  member  bank  of 
the  Federal  Reserve  System,  and  to  receive  in- 
terest on  the  same  as  may  be  agreed. 

Deposits  received 

Eleventh.  To  accept  deposits  of  securities  or  of 
current  funds  from  incorporated  agricultural  co- 
operative associations  holding  its  shares,  but  to 
pay  no  interest  on  such  deposits. 

May  borrow 

Twelfth.  To  borrow  money,  to  give  security 
therefor  and  to  pay  interest  thereon. 

Charges 

Thirteenth.  To  charge  applicants  for  loans  and 
borrowers  or  for  the  purchase  or  discount  of  paper 
herein  authorized,  under  rules  and  regulations 
promulgated   by   Federal   Rural    Credits    Board, 

184 


FOR  RURAL  CREDITS 

reasonable  fees  not  exceeding  actual  cost  of  serv- 
ice. No  such  fees  or  charges  shall  exceed  the 
maximum  limit  established  by  Federal  Rural 
Credits  Board. 

Federal  land  bank 

Fourteenth.  To  call  upon  the  Federal  Land  bank 
for  the  district  in  which  the  Debenture  bank  is 
located,  for  information  regarding  any  farm 
property  upon  which  a  second  mortgage  may  be 
applied  for,  and  said  Federal  Land  bank  shall  give 
such  information  forthwith. 

Export  credits 

Fifteenth.  To  invest  its  funds  in  obligations 
of  Federal  Rural  Credits  Company  issued  for 
the  purpose  described  in  Section  Seven  of  this 
Act. 

RESTRICTIONS  ON  FEDERAL  DEBENTURE 
BANKS 

Section  13.  No  Federal  Land  Bank  shall  have 
power — 

Deposits    limited 

First.  To  accept  deposits  of  current  funds  pay- 
able upon  demand  except  from  its  own  share- 
holders, or  to  transact  any  banking  or  other  busi- 
ness not  expressly  authorized  by  the  provisions  of 
this  Act. 

185 


THE  BILL  PROPOSED 

Second  mortgage  loans 

Second.  To  loan  on  second  mortgages  except 
upon  farm  lands  the  first  mortgage  upon  which  is 
held  by  the  Federal  Land  Bank  for  the  district 
in  which  the  debenture  bank  is  located.  No  such 
mortgage  shall  be  for  a  longer  term  than  five 
years.  No  such  second  mortgage  shall  exceed 
$5000,  nor  exceed  30%  of  the  Federal  Land 
bank's  appraised  valuation  of  said  farm  land, 
and  10%  thereof  shall  be  held  by  the  bank  as 
a  reserve  against  such  loan. 

First   mortgages 

Third.  To  accept  any  first  mortgages  on  other 
real  estate  for  the  agricultural  business  or  agri- 
cultural purposes  of  Federal  or  approved  incor- 
porated co-operative  associations.  No  such 
mortgage  shall  be  for  a  longer  term  than  five 
years,  nor  be  for  more  than  $20,000,  nor  be 
in  excess  of  fifty  per  centum  of  the  Debenture 
bank's  appraisal  of  said  real  estate,  and  five  per 
centum  thereof  shall  be  held  by  the  bank  as  a 
reserve  against  such  loan. 

Debentures  tenfold 

Fourth.  To  issue  or  obligate  itself  for  outstand- 
ing debentures  to  a  total  sum  in  excess  of  ten 
times  the  amount  of  its  capital  and  surplus;  or 
to  receive  from  any  member  additional  agricul- 

186 


FOR  RURAL  CREDITS 

tural  loans,  livestock  paper,  commodity  paper  or 
real  estate  obligations  when  the  principal  remain- 
ing unpaid  upon  such  securities  already  received 
from  such  member  shall  exceed  20  times  the 
amount  of  its  capital  stock  owned  by  such  member. 

No  commission 

Fifth.  To  demand  or  receive,  under  any  pretense, 
any  commission  or  charge  not  specifically  author- 
ized in  this  Act. 

Limit  to  rediscounts 

Sixth,  To  rediscount  for  any  one  member  an  ag- 
gregate of  notes,  drafts,  bills  of  exchange,  accept- 
ances or  other  evidences  of  debt  bearing  the  sig- 
nature or  indorsement  of  any  one  borrower, 
whether  a  person,  firm  or  corporation,  in  excess 
of  ten  per  centum  of  the  unimpaired  capital  and 
surplus  of  the  member  corporation,  but  this  limi- 
tation shall  not  apply  to  commodity  paper  or  to 
real  estate  securities  defined  by  this  Act,  pro- 
vided that  in  the  case  of  a  member  co-operative 
association  the  limitation  may  be  prescribed  by 
Federal  Rural  Credits  Board. 

Length  of  loans 

Seventh.  To  make  any  loan  or  advance,  whether 
by  rediscount  or  otherwise,  having  a  maturity  at 
the  time  of  such  advance  of  more  than  one  year; 
but  the  bank  may,  in  its  discretion,  from  time 

187 


THE  BILL  PROPOSED 

to  time  extend  the  time  of  payment  of  any  such 
loan  or  advance,  through  renewals,  substitution 
of  new  obligations  or  otherwise,  for  a  maximum 
period  of  three  years  from  the  date  upon  which 
such  loan  or  advance  was  originally  made,  provided 
that  loans  upon  real  estate  mortgages  as  herein 
provided  for  may  be  for  not  less  than  one  year 
nor  more  than  five  years. 

Interest  rate 

Eighth.  To  make  any  loan  or  advance  pursuant 
to  the  provisions  of  this  Act  at  a  rate  or  rates 
of  interest  in  excess  of  the  charge  prescribed  by 
Federal  Rural  Credits  Board.  In  no  event  shall 
the  interest  rate  so  charged  exceed  the  legal  rate 
prevailing  in  its  State. 

FEDERAL  DEBENTURES 

Provision    of 

P  1.  Section  14.  Any  Federal  Debenture 
Bank  may  issue  and  have  outstanding  at  any  one 
time  its  debentures  in  an  amount  not  more  than 
ten  times  its  paid  in  capital  and  surplus.  Deben- 
tures shall  mature  not  less  than  six  months  nor 
more  than  three  years  from  the  respective  dates 
of  issue.  Provided,  that  debentures  secured  wholly 
by  mortgages  as  described  in  Section  13,  may 
mature  in  not  more  than  five  years  from  the 

188 


FOR  RURAL  CREDITS 

respective  dates  of  issue.  Debentures  shall 
bear  such  rate  of  interest  and  be  issued 
upon  such  terms  and  conditions  as  the  di- 
rectors of  the  debenture  bank  may  determine. 

First  lien 

P  2.  Such  debentures  shall  constitute  a  first 
and  paramount  floating  charge  on  all  of  the  assets 
of  the  issuing  bank,  which  shall  not  at  any  time 
otherwise  mortgage  or  pledge  any  of  its  assets. 
Such  debentures  may  be  offered  for  sale  publicly 
or  to  any  individual,  firm,  corporation  or  associa- 
tion at  such  price  or  prices  as  the  directors  of  the 
issuing  bank  may  d'^termine,  subject  to  the  ap- 
proval of  Federal  Rural  Credits  Board. 

FORM  OF  FEDERAL  DEBENTURES 

Denominations 

P  1.  Section  15.  That  the  debentures  provid- 
ed for  in  this  Act  shall  be  issued  in  series  as  de- 
termined by  Federal  Rural  Credits  Board  and 
may  be  in  denominations  of  $25,  $50,  $100, 
$500,  $1,000,  $5,000,  $10,000  $50,000  or  $100,- 
000 ;  they  shall  run  for  specified  periods,  pay- 
able at  maturity  in  gold  or  lawful  money. 

Term  of 

P  2.  Each  debenture  secured  in  whole  or  in 
part  by  personal  security  shall  have  a  maturity 

189 


THE  BILL  PROPOSED 

of  not  less  than  six  months  and  not  exceeding 
three  years  from  its  date.  Debentures  the  se- 
curity for  which  consists  wholly  of  mortgage  obli- 
gations upon  real  estate  shall  have  a  maturity 
of  not  less  than  one  year  and  not  exceeding  five 
years. 

Coupons 

P  3.  Debentures  having  a  maturity  of  not  less 
than  one  year  nor  more  than  five  years  shall  have 
interest  coupons  attached,  payable  semi-annually. 
They  shall  bear  such  rate  of  interest  as  may  be 
fixed  by  Federal  Rural  Credits  Board. 

Printing  debentures 

P  4.  In  order  to  furnish  federal  debentures  for 
delivery  at  the  Federal  Debenture  Banks,  the 
Secretary  of  the  Treasury  is  hereby  authorized 
to  prepare  suitable  debentures  in  such  form,  sub- 
ject to  the  provisions  of  this  act,  as  the  Federal 
Rural  Credits  Board  may  approve.  Such  deben- 
tures when  prepared  shall  be  held  in  the  Treasury 
subject  to  delivery  upon  order  of  the  Federal 
Rural  Credits  Board.  The  engraving  plates,  dies, 
bed  pieces,  and  so  forth,  executed  in  connection 
therewith,  shall  remain  in  the  custody  of  the  Sec- 
retary of  the  Treasury.  Any  expense  incurred  in 
the  preparation,  custody  and  delivery  of  such  de- 
bentures shall  be  paid  by  the  Secretary  of  the 

190 


FOR  RURAL  CREDITS 

Treasury  from  any  funds  in  the  Treasury  not 
otherwise  appropriated;  provided  however,  that 
the  Secretary  shall  be  reimbursed  for  such  ex- 
penditures through  assessment  upon  the  Federal 
Debenture  Banks  in  proportion  to  the  work 
executed. 

SPECIAL  PROVISIONS  OF  FEDERAL 
DEBENTURES 

Bound  by  its  officers 

P  1.  Section  16.  That  each  Federal  Deben- 
ture Bank  shall  be  bound  in  all  respects  by  the  acts 
of  its  oflEicers  in  signing  and  issuing  federal  deben- 
tures, and  by  the  acts  of  the  Federal  Rural  Credits 
Board  in  authorizing  their  issue. 

Specific   liability 

P  2.  Every  Federal  Debenture  Bank  shall  ob- 
ligate itself  to  become  liable  upon  its  debentures 
as  provided  in  this  section,  by  appropriate  action 
of  its  board  of  directors,  duly  recorded  in  its 
minutes. 

Certified  by  F  R  C  Co 

P  3.  Every  Federal  debenture  issued  by  a 
Federal  Debenture  Bank  shall  be  signed  by  its 
president  and  attested  by  its  secretary  and  shall 
contain  in  the  face  thereof  a  certificate  signed  by 
the  president  of  the  Federal  Rural  Credits  Com- 

191 


THE  BILL  PROPOSED 

pany  to  the  effect  that  it  is  issued  under  the 
authority  of  Federal  Rural  Credits  Act,  has  the 
approval  in  form  and  issue  of  Federal  Rural 
Credits  Board,  and  is  legal  and  regular  in  all  re- 
spects; that  it  is  not  taxable  by  national,  state, 
municipal  or  local  authority  except  as  speci- 
fied in  this  Act;  that  it  is  issued  against 
collateral  security  of  United  States  govern- 
ment bonds  or  indorsed  real  estate  mortgages 
and  or  secured  agricultural  loans,  live  stock  paper 
or  commodity  paper  exceeding  in  amount  the  de- 
bentures issued  as  provided  by  this  Act ;  and  that 
the  principal  and  interest  of  each  debenture  are 
both  unreservedly  guaranteed  by  the  Federal 
Rural  Credits  Company. 

Guarantee  of  principal  and  interest 

P  4.  The  Federal  Rural  Credits  Company 
hereby  is  authorized  and  instructed  to  obligate 
itself  to  become  liable  for  the  principal  and  in- 
terest of  federal  debentures,  as  provided  in  this 
section,  by  appropriate  action  of  its  board  of  di- 
rectors duly  recorded  in  its  minutes. 

APPLICATIONS  FOR  FEDERAL 
DEBENTURES 

Margin  for  debentures 

P  1.        Section   17.    Any     Federal     Debenture 

192 


FOR  RURAL  CREDITS 

Bank  which  shall  have  voted  to  issue  Federal 
debentures  under  this  Act,  shall  make  written  ap- 
plication to  Federal  Rural  Credits  Board  through 
the  Custodian  of  the  bank  for  approval  of  such 
issue.  With  said  application  said  bank  shall 
tender  to  said  Custodian  as  collateral  security 
United  States  bonds  not  less  in  aggregate  amount 
than  the  sum  of  the  debentures  proposed  to  be 
issued;  or  other  properly  secured  paper  qualified 
under  the  provisions  of  this  Act,  not  less  in  amount 
than  $100  of  first  mortgage  real  estate  obliga- 
tions for  each  $95  of  debentures  proposed  to  be 
issued;  not  less  in  amount  than  $100  of  second 
mortgage  real  estate  obligations  for  each  $90  of 
debentures  proposed  to  be  issued;  not  less  in 
amount  than  $100  of  commodity  paper  for  each 
$90  to  be  issued;  not  less  in  amount  than  $100 
of  live  stock  paper  for  each  $85  proposed  to  be 
issued;  not  less  in  amount  than  $100  of  agri- 
cultural loans  for  each  $80  proposed  to  be  issued. 

Custodian  verifies 

P  2.  Upon  receipt  of  such  application  the 
Custodian  shall  verify  said  schedule  and  shall 
transmit  the  application  and  schedule  to  Federal 
Rural  Credits  Board,  giving  such  further  infor- 
mation pertaining  thereto  as  he  may  possess.    The 

193 


THE  BILL  PROPOSED 

Board  forthwith  shall  cause  to  be  made  such  in- 
vestigation and  appraisement  of  the  securities 
tendered  as  it  shall  deem  wise,  and  it  shall  grant 
in  whole  or  in  part,  or  reject  entirely,  such  appli- 
cation. 

Board   decides 

P  3.  The  Board  shall  promptly  transmit  its 
decision  as  to  any  issue  of  debentures  to  the  bank 
applying  for  the  same  and  to  the  Custodian 
thereof.  Said  custodian  shall  furnish  in  writing 
such  information  regarding  any  issue  of  deben- 
tures of  his  bank  as  the  board  may  at  any  time 
require. 

Guarantee 

P  4.  No  issue  of  Federal  debentures  shall  be 
authorized  unless  Federal  Rural  Credits  Board 
shall  approve  such  issue  in  writing,  and  such  ap- 
proval shall  carry  with  it  the  agreement  on  the 
part  of  the  Federal  Rural  Credits  Company  to 
guarantee  the  principal  and  interest  of  said  de- 
bentures. 

ISSUE  OF  FEDERAL  DEBENTURES 

Delivery 

P  1.  Section  18.  Whenever  any  Custodian 
shall  receive  from  Federal  Rural  Credits  Board 
notice  that  it  has  approved  any  issue  of  Federal 
debentures  under  the  provisions  of  Section  15,  he 

194 


FOR  RURAL  CREDITS 

shall  forthwith  take  such  steps  as  may  be  neces- 
sary, in  accordance  with  the  provisions  of  this 
Act,  to  secure  the  prompt  execution  of  said  deben- 
tures and  the  delivery  of  the  same  to  the  deben- 
ture bank  applying  therefor. 

Rejection 

P  2.  Whenever  Federal  Rural  Credits  Board 
shall  reject  any  security  tendered  to  the  Custo- 
dian as  collateral,  the  same  shall  be  returned 
forthwith  to  said  bank  by  him. 

Securities 

P  3.  Whenever  Federal  Rural  Credits  Board 
shall  approve  an  issue  of  debentures  by  any  Fed- 
eral debenture  bank,  the  federal  Custodian  having 
the  custody  of  the  securities  tendered  as  collateral 
for  such  issue  of  debentures,  shall  retain  in  his 
custody  those  securities  which  are  to  be  held  as 
collateral  against  said  debentures,  and  shall  re- 
turn to  the  bank  owning  the  same  any  of  such 
securities  which  are  not  to  be  held  by  him  as 
collateral.  The  Federal  debenture  bank  which  is 
to  issue  said  debentures  shall  transfer  to  said 
Custodian,  by  assignment,  in  trust,  the  paper 
representing  all  real  estate  obligations,  com- 
modity paper,  live  stock  paper  or  agricultural 
loans,  and  all  mortgages,  liens  or  other  security 
supporting  same,  which  are  to  be  held  by  the 

195 


THE  BILL  PROPOSED 

Custodian  as  collateral  security  for  said  deben- 
tures, said  assignment  providing  for  the  right  of 
redemption  at  any  time  by  payment,  and  reserving 
the  right  of  substitution  of  other  qualified  securi- 
ties. Said  collateral  shall  be  deposited  in  such 
deposit  vault  or  bank  as  Federal  Rural  Credits 
Board  shall  approve  subject  to  the  control  of  said 
Custodian  and  in  his  name  as  the  trustee  for  the 
Federal  debenture  bank  issuing  the  debentures 
and  for  the  prospective  holders  of  said  federal 
debentures. 

Classes  of 

P  4.  It  shall  be  the  duty  of  each  Custodian 
to  see  that  the  Federal  debenture  bonds  delivered 
by  him  and  outstanding  do  not  exceed  the  amount 
of  collateral  security  pledged  therefor.  Said  col- 
lateral for  any  issue  of  bonds  may  be  wholly  or 
partly  of  any  of  the  four  classes  of  paper  above 
described  or  a  mixture  thereof;  provided,  that 
only  real  estate  obligations  may  be  used  as  col- 
lateral security  for  debentures  with  a  maturity 
longer  than  three  years  nor  more  than  five 
years.  Such  Custodian  may,  in  his  discretion, 
temporarily  accept,  in  place  of  securities  with- 
drawn. United  States  government  securities  or 
cash. 

196 


II 


FOR  RURAL  CREDITS 

More  security 

P  5.  The  Federal  Rural  Credits  Board  may,  at 
any  time,  call  upon  any  Federal  debenture  bank 
for  additional  security  to  protect  the  debentures 
issued  by  it. 

APPLICATION  OF  PAYMENTS 

Credits 

P  1.  Section  19.  Whenever  any  Federal  De- 
benture Bank  shall  receive  any  interest,  partial 
payment  or  total  payment  upon  any  collateral 
pledged  as  security  for  the  issue  of  Federal  de- 
bentures, it  forthwith  shall  notify  the  Custodian 
of  the  item  so  received.  Said  Custodian  shall 
cause  such  payment  to  be  duly  credited  forthwith 
upon  the  security  and  title  of  such  credit.  When- 
ever any  such  instrument  is  paid  in  full,  the  Cus- 
todian shall  cause  the  same  to  be  cancelled  and 
delivered  to  the  debenture  bank,  which  shall 
promptly  satisfy  and  discharge  any  lien  of  record 
and  transmit  such  cancelled  instrument  and 
all  of  the  papers  appertaining  thereto  to  the 
original  maker  thereof  or  his  heirs,  administra- 
tors, executors  or  assigns. 

Substitutions 

P  2.  Upon  written  application  to  its  Custodian, 
any  Federal  Debenture  Bank  may  be  permitted,  in 
the  discretion  of  the  Custodian,  to  withdraw  any 

197 


THE  BILL  PROPOSED 

securities  pledged  as  collateral  under  this  act  and 
to  substitute  therefor  other  similar  securities  or 
United  States  government  securities  not  less  in 
amount  than  the  securities  desired  to  be  with- 
drawn. 

How  payable 

P  3.  Whenever  any  Federal  debentures,  or 
coupons  or  interest  payments  thereon  are  due 
under  their  terms,  they  shall  be  payable  at  the 
debenture  bank  by  which  they  were  issued,  in 
gold  or  lawful  money,  and  upon  payment  shall  be 
duly  cancelled  by  said  bank.  At  the  discretion 
of  Federal  .Rural  Credits  Board,  payment  of  any 
federal  debenture  or  coupon  or  interest  payment 
may,  however,  be  authorized  to  be  made  at  any 
other  bank,  including  Federal  Reserve  banks. 

Withdrawal 

P  4.  When  any  Federal  Debenture  Bank  shall 
surrender  to  its  Custodian  any  of  its  Federal 
debentures  of  any  series,  cancelled  or  uncancelled, 
said  bank  shall  be  entitled  to  withdraw  the  col- 
lateral pledged  as  security  for  said  series  of  de- 
bentures to  an  amount  equal  to  the  debentures 
so  surrendered,  and  it  shall  be  the  duty  of  said 
Custodian  to  permit  and  direct  the  delivery  of 
such  securities  to  said  bank  and  to  see  to  it  that 
said  debentures  are  duly  cancelled. 

198 


FOR  RURAL  CREDITS 

Collateral 

P  5.  Interest  payments  upon  securities  hy- 
pothecated as  collateral  shall  be  at  the  disposal 
of  the  Federal  Debenture  Bank  pledging  the  same, 
and  shall  be  available  for  the  payment  of  coupons 
and  the  interest  upon  Federal  debentures  issued 
by  such  bank  as  they  become  due. 

Payments    of 

P  6.  Whenever  any  debenture  matures  or  the 
interest  on  any  debenture  is  due,  or  the  coupon 
on  any  coupon  debenture  matures,  and  the  same 
shall  be  presented  for  payment,  as  provided  in  this 
Act,  the  full  face  value  thereof  shall  be  paid  to 
the  holder.  Partial  and  other  payments  upon  the 
principal  of  securities  held  by  a  Custodian  as  col- 
lateral for  the  issue  of  Federal  debentures  shall 
constitute  a  trust  fund  in  the  hands  of  the  deben- 
ture bank  receiving  the  same,  and  shall  be  applied 
or  employed  as  follows : — 

P  7.  (a)  To  pay  off  debentures  issued  by- 
said  bank  as  they  mature. 

P  8.  (b)  To  purchase  at  or  below  par  deben- 
tures issued  by  said  bank  or  by  any  other  Fed- 
eral Debenture  bank. 

P  9.  (c)  To  purchase  the  bonds  or  other  in- 
strumentalities of  the  United  States. 

199 


THE  BILL  PROPOSED 

Trust  fund 

P  10.  The  securities  constituting  the  trust 
fund  aforesaid,  shall  be  deposited  forthwith  with 
the  Custodian  as  substituted  collateral  security  in 
place  of  the  sums  paid  on  the  principal  of  securi- 
ties held  by  him  as  collateral  in  trust. 

Trustees  power 

P  11.  Every  debenture  bank  shall  notify  its 
Custodian  of  the  disposition  of  all  payments  made 
on  the  principal  of  securities  held  as  collateral 
for  an  issue  of  debentures,  and  said  Custodian  is 
authorized,  at  his  discretion,  to  order  any  of  such 
payments  or  the  proceeds  thereof,  wherever  de- 
posited or  however  invested,  to  be  immediately 
transferred  to  his  account  as  trustee  aforesaid. 

DIVISION  OF  EARNINGS 

Applied   to   surplus 

P  1.  Section  20.  After  all  necessary  expenses 
of  Federal  Rural  Credits  Company  shall  have  been 
paid  or  provided  for,  including  reserv^e  for  con- 
tingencies, the  earnings  shall  be  paid  into  a  sur- 
plus fund  until  such  funds  amount  to  $100,000,000. 
Thereafter  all  net  earnings  of  Federal  Rural 
Credits  Company  shall  be  paid  to  the  United 
States  as  a  franchise  tax. 

Six  percent  dividend 

P  2.        After  all  necessary  expenses  of  any  Fed- 

200 


FOR  RURAL  CREDITS 

eral  debenture  bank  have  been  paid  or  provided 
for,  including  reserve  for  contingencies  to  an 
amount  approved  by  Federal  Rural  Credits  Board, 
the  shareholders  (other  than  Federal  Rural 
Credits  Company)  shall  be  entitled  to  receive  the 
annual  dividend  of  six  per  centum  upon  the  paid 
in  capital  stock,  which  dividend  shall  be  cumu- 
lative and  non-taxable. 

25%   surplus 

P  3.  After  the  aforesaid  dividend  claims  shall 
have  been  fully  met  or  provided  for,  the  earnings 
shall  be  paid  into  a  surplus  fund  until  such  funds 
shall  amount  to  25%  of  the  total  capital  stock  of 
any  Federal  debenture  bank. 
P  4.  Thereafter,  all  net  earnings  over  and 
above  those  necessary  to  pay  cumulative  dividends 
and  to  maintain  said  surplus  of  such  bank  shall 
be  used — 

Extra  dividend 

P  5.  (a)  To  pay  an  additional  non-cumula- 
tive dividend  of  not  to  exceed  two  per  centum  per 
annum  upon  all  member  shares. 

50%  surplus 

P  6.  (b)  To  increase  the  surplus  fund  of  the 
bank  until  such  funds  equal  fifty  per  centum  of 
its  initial  capital. 

201 


THE  BILL  PROPOSED 

Retire  initial   capital — franchise  tax 

P  7.  (c)  The  balance,  if  any  remain,  shall 
be  paid  to  the  Secretary  of  the  Treasury  to  re- 
tire shares  of  the  initial  capital  as  provided  in 
paragraph  8  of  section  10  hereof;  and  after  all  of 
the  initial  capital  shall  have  been  retired,  such 
balance,  if  any  remain,  shall  be  paid  to  the  United 
States  as  a  franchise  tax. 

LIABILITY  OF  THE  UNITED  STATES 

No  liability 

P  1.  Section  21.  That  the  United  States  shall 
not  be  liable  for  the  payment  of  any  note,  deben- 
ture or  other  obligation  or  the  interest  thereon 
issued  or  incurred  by  Federal  Rural  Credits  Com- 
pany or  by  any  Federal  Debenture  Bank,  nor  shall 
it  incur  any  liability  in  respect  of  any  act  or  omis- 
sion of  said  institutions. 

Except  on  its  shares 

P  2.  It  shall  in  no  event  be  liable  for  any  debts 
of  Federal  Rural  Credits  Company  beyond  the 
amount  of  its  subscription  to  the  capital  stock  of 
that  company  through  the  latter's  taking  over  of 
the  assets  of  War  Finance  Corporation. 

TAX  EXEMPTION* 

Exemption 

P  1.  Section  22.  That  any  and  all  credit  in- 
struments issued  by  Federal  Rural  Credits  Com- 

202 


FOR  RURAL  CREDITS 

pany,  or  by  any  Federal  Debenture  Bank,  shall 
be  exempt,  both  as  to  principal  and  interest,  from 
all  taxation  now  or  hereafter  imposed  by  the 
United  States,  any  State,  or  any  of  the  possessions 
of  the  United  States,  or  by  any  local  taxing  au- 
thority, except  (a)  estate  or  inheritance  taxes,  and 
(b)  graduated  additional  income  taxes,  commonly 
known  as  surtaxes,  and  excess-profits  and  war- 
profits  taxes,  now  or  hereafter  imposed  by  the 
United  States,  Upon  the  income  or  profits  of  in- 
dividuals, partnerships,  corporations  or  associa- 
tions. The  interest  on  an  amount  of  such  instru- 
ments the  principal  of  which  does  not  exceed  in 
the  aggregate  $5,000,  owned  by  an  individual, 
partnership,  corporation,  or  association,  shall  be 
exempt  from  the  taxes  referred  to  in  clause  (b). 

other  exemptions 

P  2.  The  Company  and  said  debenture  banks, 
including  their  franchise  and  the  capital  and  re- 
serve or  surplus  thereof,  and  the  income  derived 
therefrom,  shall  be  exempt  from  all  taxation  now 
or  hereafter  imposed  by  the  United  States,  any 
State,  or  any  of  the  possessions  of  the  United 
States,  or  by  any  local  taxing  authority,  except 
that  any  of  their  real  property  shall  be  subject  to 
state,  county  or  municipal  taxes  to  the  same  ex- 

203 


THE  BILL  PROPOSED 

tent,  according  to  its  value,  as  other  real  property 
is  taxed. 

♦SPECIAL  NOTE.  This  section  22  is  quoted  from 
the  Norbeck  bill,  S  3499.  Tlie  preliminary  draft  of  the 
bill  prepared  in  the  office  of  the  American  Farm  Bureau 
Federation,  not  yet  introduced,  is  in  accord  with  the 
paragraph  just  quoted. 

The  Lenroot-Anderson  bill,  S  3051,  is  silent  as  to 
taxation. 

The  Capper  bill,  S  3639,  provides  tax  exemption  upon 
securities  issued  prior  to  June  30,  1925,  but  after  that 
date  they  "shall  be  subject  to  income  tax  imposed  by  the 
United  States  or  any  state,"  and  all  such  securities  issued 
after  that  date  "shall  be  subject  to  general  property  tax 
to  the  same  extent  according  to  their  value  as  other  per- 
sonal property  is  taxed." 

The  Simmons  bill,  S  3390,  follows  substantially  the 
phraseology  of  the  Federal  Farm  Loan  Act  which,  adapted 
to  this  measure,  would  read  as  follows. 

Sec.  Any  and  all  credit  instruments  issued  by  Fed- 
eral Rural  Credits  Companj',  or  by  any  Federal  debenture 
bank,  including  the  capital  and  reserve  or  surplus  therein 
and  the  income  derived  therefrom,  shall  be  exempt  from 
federal,  state,  municipal  and  local  taxation,  except  taxes 
upon  real  estate  held,  purchased  or  taken  by  said  com- 
pany or  bank  under  the  provisions  of  sec  twelve  of  this 
Act.  Mortgages  executed  to  any  Federal  debenture  bank, 
also  Federal  debentures  issued  under  the  provisions  of 
this  Act,  shall  be  deemed  and  held  to  be  instrumentalities 
of  the  government  of  the  United  States,  and  as  such 
they  and  the  income  derived  therefrom  shall  be  exempt 
from  federal,  state,  municipal  and  local  taxation.  Nothing 
herein  contained  shall  be  construed  to  exempt  the  real 
property  of  Federal  Rural  Credits  Company  or  any  Fed- 
eral Debenture  Bank  from  either  state,  county  or  muni- 
cipal tax,  to  the  same  extent,  according  to  its  value,  as 
other  real  property  is  taxed. 


204 


FOR  RURAL  CREDITS 

FEDERAL  RURAL  CREDIT  SYSTEM 
ASSOCIATIONS 

Organization 

P  1.  Section  23.  Associations  to  be  operated 
upon  the  co-operative  principle  for  the  purpose 
of  engaging  in  making  loans  on  agricultural 
products  as  defined  in  this  Act,  and  to  act  when 
required  by  the  Secretary  of  the  Treasury  as 
fiscal  agents  of  the  United  States,  and  to  assist 
in  the  production,  assembling,  grading,  distribu- 
tion and  marketing  of  agricultural  products  and 
livestock  in  an  orderly  manner,  and  for  the  pro- 
duction, buying  or  selling  of  any  or  all  products, 
merchandise  or  commodities  incident  to  agricul- 
ture, or  for  agricultural  purposes  or  agricultural 
business  as  defined  by  this  Act,  may  be  formed 
by  any  number  of  natural  persons  not  less  in  any 
case  than  five  who  are  producers  of  farm  products. 

How   formed 

P  2.  The  persons  desiring  to  form  such  asso- 
ciations shall  make  an  organization  certificate 
under  their  seals  which  shall  specifically  state  the 
name  of  the  association  to  be  organized,  the  place 
in  which  its  principal  office  is  to  be  located,  the 
amount  of  the  capital  stock  with  which  it  is  to 
begin  business  (which  shall  be  in  shares  of  $5 
each  with  one  vote  only  to  each  member  irre- 

205 


THE  BILL  PROPOSED 

spective  of  the  number  of  shares  owned) ,  and  the 
fact  that  the  certificate  is  made  to  enable  the  asso- 
ciation formed  to  avail  itself  upon  the  co-operative 
plan  of  the  advantages  of  this  Act. 

Named 

P  3,  The  name  selected  shall  be  subject  to  the 
approval  of  Federal  Rural  Credits  Board.  All  cor- 
porations not  created  in  the  manner  and  for  the 
express  purpose  hereby  provided,  are  prohibited 
from  using  the  words,  "Federal  Agricultural  Co- 
operative" as  a  part  of  their  corporate  firm,  part- 
nership or  association  name  under  penalty  of  $50 
for  each  day  during  which  such  violation  is  com- 
mitted or  repeated. 

Certificate 

P  4.  The  organization  certificate  shall  be  ac- 
knowledged before  a  judge  of  some  court  of  record 
or  notary  public  and  shall,  together  with  the  ac- 
knowledgment thereof,  be  duly  authenticated  by 
the  seal  of  the  court  or  notary,  and  transmitted 
to  the  superintendent  of  the  Federal  Rural 
Credits  Board  who  shall  file,  record  and  care- 
fully preserve  the  same  in  its  office. 

Charter 

P  5.  When  the  board  finds  that  such  certifi- 
cate is  in  accordance  with  this  Act  and  complies 
with  all  rules  and  regulations  pursuant  hereto,  the 

206 


FOR  RURAL  CREDITS 

board  shall  issue  a  charter  to  said  association, 
whereupon  it  shall  become  a  body  corporate  and 
as  such  and  in  the  name  approved  shall  have 
power — 

May   make    loans 

P  6.  (a)  To  make  loans  to  persons,  firms  or 
corporations  engaged  in  producing  agricultural 
products  as  defined  by  this  Act,  including  live 
stock. 

Deal  in  paper 

P  7.  (b)  To  purchase,  sell,  discount,  issue 
and  negotiate  livestock  paper,  agricultural  loans, 
commodity  paper  and  real  estate  obligations  as 
defined  by  this  Act,  or  federal  farm  loan  bonds 
or  United  States  bonds  or  United  States  certifi- 
cates of  indebtedness. 

Legal  entity 

P  8.  (c)  To  receive  and  hold  and  enjoy  lands 
and  chattels  of  any  kind  or  effect  whatsoever,  the 
same  to  grant,  sell  and  dispose  of,  sue  and  be  sued, 
plead  and  be  impleaded,  contract  and  be  contracted 
with,  and  to  establish  and  put  into  execution  by- 
laws for  its  government. 

Member    debenture    bank 

P  9.  (d)  To  become  a  member  of  the  Fed- 
eral Debenture  bank  for  its  state  as  specified  in 
Sections  10  of  this  Act. 

207 


THE  BILL  PROPOSED 

At  least   $1,000   capital 

P  10.  No  such  association  shall  be  organized 
under  the  provisions  of  this  section  with  a  capital 
stock  of  less  than  $1,000  to  be  paid  in,  invested 
and  held  in  the  manner  prescribed  by  the  associa- 
tion. 

Shareholders    liability 

P  11.  Shareholders  of  any  such  association 
shall  be  held  individually  responsible  for  all  con- 
tracts, debts  and  engagements  of  such  associa- 
tion, each  to  the  amount  of  his  stock  therein  at 
the  par  value  thereof  in  addition  to  the  amount 
invested  in  such  stock.  The  shareholders  in  any 
such  association  who  shall  have  transferred  their 
shares  or  registered  the  transfer  thereof  within 
sixty  days,  next  before  the  date  of  the  failure 
of  such  association  to  meet  its  obligations,  or  with 
knowledge  of  such  impending  failure,  shall  be 
liable  to  the  same  extent  as  if  they  had  made  no 
such  transfer  to  the  extent  that  the  subsequent 
transferee  fails  to  meet  such  liability.  But  this 
provision  shall  not  be  construed  to  affect  in  any 
way  any  recourse  which  such  shareholders  might 
otherwise  have  against  those  in  whose  names  such 
shares  are  registered  at  the  time  of  such  failure. 

Supervision 

P  12.        All  such  associations  shall  be  subject  to 

208 


FOR  RURAL  CREDITS 

rules  and  regulations  made  pursuant  hereto  by 
Federal  Rural  Credits  Board,  shall  make  to  it  such 
reports  of  conditions  as  it  may  require,  shall  be 
subject  to  such  general  or  special  examination  by 
auditors  appointed  or  selected  by  the  board  as 
it  may  prescribe,  and  shall  not  charge  for  its 
services  a  sum  in  excess  of  the  limits  prescribed 
by  the  board. 

Forfeiting  charter 

P  13.  Failure  of  any  such  association  to  com- 
ply with  the  j  ust  and  legal  orders,  rules  or  regu- 
lations of  the  Board,  or  the  failure  of  said  asso- 
ciation to  meet  its  obligations,  shall  warrant  the 
Board  in  withdrawing  and  forfeiting  its  charter 
whereupon  it  shall  liquidate  forthwith. 

EXAMINATIONS 

Examiners 

P  1.  Sec.  24  That  the  Federal  Rural 
Credits  Board  shall  appoint  as  many  examiners 
as  in  its  judgment  may  be  required  to  make 
careful  examinations  of  the  banks  and  associa- 
tions permitted  to  do  business  under  this  Act. 

Responsibilities  of 

P  2.  Said  examiners  shall  be  subject  to  the 
same  requirements,  responsibilities  and  penal- 
ties as  are  applicable  to  national  bank  examin- 

209 


THE  BILL  PROPOSED 

ers  under  the  National  Bank  Act,  the  Federal 
Reserve  Act  and  other  provisions  of  law.  When- 
ever directed  by  the  Federal  Rural  Credits 
Board,  said  examiners  shall  examine  the  con- 
dition of  any  incorporated  co-operative  associa- 
tion doing  business  pursuant  to  the  terms  hereof 
and  report  the  same  to  the  chairman  of  the 
Federal  Rural  Credits  Board.  They  shall  ex- 
amine and  report  the  condition  of  every  federal 
debenture  bank  at  least  twice  a  year. 

Salaries 

P  3.  Said  examiners  shall  receive  salaries 
to  be  fixed  by  Federal  Rural  Credits  Board. 

DISSOLUTION   AND   APPOINTMENT 
OF  RECEIVERS 

Failures 

P  1.  Sec.  25.  That  upon  receiving  satis- 
factory evidence  that  any  Federal  debenture 
bank,  federal  co-operative  bank  or  federal  co- 
operative agricultural  association  has  failed 
to  meet  its  outstanding  obligations  of  any  de- 
scription. Federal  Rural  Credits  Board  forth- 
with may  declare  such  association  insolvent  and 
appoint  a  receiver  and  require  of  him  such  bond 
and  security  as  it  deems  proper;  Provided  that 
any  such  institution  so  declared  insolvent  may 

210 


I* 

1 


FOR  RURAL  CREDITS 

appeal  to  the  Federal  Reserve  Board,  which 
shall  give  a  hearing  to  the  parties  in  interest 
and  the  verdict  of  such  Board  shall  be  binding. 
Such  receiver,  under  the  direction  of  Federal 
Rural  Credits  Board,  shall  take  possession  of 
the  books,  records  and  assets  of  every  descrip- 
tion of  such  institution,  collect  all  debts,  dues 
and  claims  belonging  to  it,  and  with  the  ap- 
proval of  Federal  Rural  Credits  Board,  or  upon 
the  order  of  a  court  of  record  of  competent  jur- 
isdiction, may  sell  or  compound  all  bad  or 
doubtful  debts,  and  on  a  like  approval  or  order 
may  sell  all  real  or  personal  property  of  such 
institution,  on  such  terms  as  Federal  Rural 
Credits  Board  or  such  court  shall  direct. 

Receiver 

P  2.  Such  receiver  shall  pay  over  all  money 
so  collected  to  the  Treasury  of  the  United 
States,  subject  to  the  order  of  Federal  Rural 
Credits  Board,  and  also  make  report  to  said 
Board  of  all  his  acts  and  proceedings.  The 
Secretary  of  the  Treasury  shall  have  authority 
to  deposit  at  interest  any  money  so  received. 

Liquidation 

P  3.  No  such  institution  shall  go  into  vol- 
untary liquidation  without  the  written  consent 

211 


THE  BILL  PROPOSED 

of  Federal  Rural  Credits  Board,  but  federal  co- 
operative agricultural  associations  may  consoli- 
date under  rules  and  regulations  promulgated 
by  said  Board. 

PENALTIES 

No  graft 

P  1.  Sec.  26.  Except  as  herein  provided, 
any  officer,  director,  employee,  agent  for  or  at- 
torney of  any  bank  mentioned  herein  or  of  any 
federal  land  bank  or  of  any  joint  stock  land 
bank,  incorporated  agricultural  co-operative 
association  or  incorporated  live  stock  loan  com- 
pany who  stipulates  for  or  receives  or  consents 
or  agrees  to  receive  under  any  form  or  pretense, 
any  fee,  commission,  bonus,  gift  or  thing  of 
value  from  any  person,  firm  or  corporation,  for 
procuring  or  endeavoring  to  procure  for  such 
person,  firm  or  corporation,  or  for  any  other 
person,  firm  or  corporation  any  loan  from  or  the 
purchase  or  discount  of  any  paper,  note,  draft, 
check,  acceptance,  bill  of  exchange  or  obliga- 
tion by  such  bank  shall  be  deemed  guilty  of  a 
misdemeanor  and  shall  be  imprisoned  not  more 
than  one  year  or  fined  not  more  than  $5000  or 
both. 

212 


FOR  RURAL  CREDITS 

Middlemen    unnecessary 

P  2.  It  shall  not  be  necessary  for  any 
would-be  borrower  of  any  institution  named 
herein  to  employ  an  agent,  attorney,  middle- 
man or  other  person,  firm  or  corporation  to 
negotiate  any  loan  from  or  the  purchase  or  dis- 
count of  any  paper,  note,  draft,  check,  accept- 
ance or  bill  of  exchange  by  any  institution  re- 
ferred to  in  this  act,  and  any  borrower  or  his 
agent,  middleman,  intermediary  or  attorney 
who  stipulates  to  give  or  gives  or  consents  or 
agrees  to  give  under  any  form  or  pretense,  any 
fee,  commission,  bonus  or  thing  of  value  to  any 
person,  firm  or  corporation  for  procuring  or  en- 
deavoring to  procure  for  such  borrower  or  his 
agent,  middleman,  intermediary  or  attorney, 
any  loan  from  or  the  purchase  or  discount  of 
any  paper,  note,  draft,  check,  acceptance,  bill 
of  exchange  or  obligation  by  any  institution 
named  herein,  shall  be  deemed  guilty  of  a  mis- 
demeanor and  shall  be  imprisoned  not  more 
than  one  year  or  fined  not  more  than  $1,000,  or 
both. 

No  fatuities 

P  3.  No  Federal  co-operative  bank,  Fed- 
eral debenture  bank  or  the  Federal  Rural  Cred- 

213 


THE  BILL  PROPOSED 

it  Company  and  no  officer,  director  or  employee 
thereof  shall  hereafter  make  any  loan  or  grant 
any  gratuity  to  any  legally  appointed  examiner 
for  or  auditor  of  such  bank.  Any  such  bank  of- 
ficer, director  or  employee  violating  this  condi- 
tion shall  be  deemed  guilty  of  a  misdemeanor 
and  shall  be  imprisoned  not  more  than  one  year 
or  fined  not  more  than  $5000  or  both.  He  may 
be  fined  a  further  sum  equal  to  the  money  so 
loaned  or  gratuity  given. 

Penalty 

P  4.  Any  such  examiner  or  auditor  accept- 
ing a  loan  or  gratuity  from  any  such  bank  ex- 
amined or  audited  by  him  or  from  an  officer, 
director  or  employee  thereof  or  borrower  there- 
in shall  be  deemed  guilty  of  a  misdemeanor  and 
shall  be  imprisoned  one  year  or  fined  not  more 
than  $5000  or  both  and  be  fined  a  further  sum 
equal  to  the  money  so  loaned  or  gratuity  given 
and  shall  forever  thereafter  be  disqualified 
from  holding  office  as  an  examiner  for  or  audi- 
tor of  such  banks. 

False    statements 

P  5.  That  any  applicant  for  an  advance, 
loan,  rediscount,  purchase  or  sale  of  securities 
under  this  Act  who  shall  knowingly  make  any 

214 


FOR  RURAL  CREDITS 

false  statement  in  his  application  therefor, 
and  any  member  of  a  loan  committee  or  any  ap- 
praiser provided  for  in  this  Act  who  shall  will- 
fully over-value  any  security  offered  as  collat- 
eral for  loans  under  this  Act,  shall  be  punished 
by  a  fine  of  not  exceeding  $5000  or  by  imprison- 
ment not  exceeding  one  year  or  both. 

Counterfeiting 

P  6.  Any  person  who  shall  falsely  make, 
forge  or  counterfeit,  or  cause  or  procure  to  be 
falsely  made,  forged  or  counterfeited,  or  will- 
ingly aid  or  assist  in  falsely  making,  forging  or 
counterfeiting  any  debenture,  coupon  or  paper 
in  imitation  of  or  purporting  to  be  in  imitation 
of  the  debentures  or  coupons  issued  by  any  fed- 
eral debenture  bank  or  by  Federal  Rural  Cred- 
its Company;  or  any  person  who  shall  pass,  ut- 
ter or  publish,  or  attempt  to  pass,  utter  or  pub- 
lish any  false,  forged  or  counterfeited  deben- 
ture coupon  or  paper  purporting  to  be  issued  by 
any  such  bank  or  the  Company,  knowing  the 
same  to  be  falsely  made,  forged  or  counter- 
feited; or  whoever  shall  falsely  alter,  or  cause 
or  procure  to  be  falsely  altered,  or  shall  will- 
ingly aid  or  assist  in  falsely  altering  any  such 
debenture,  coupon  or  paper,  or  shall  pass,  utter 

215 


THE  BILL  PROPOSED 

or  publish  as  true  any  falsely  altered  or  spu- 
rious debenture,  coupon  or  paper  issued,  or  pur- 
porting to  have  been  issued  by  any  such  bank 
or  by  the  Company,  knowing  the  same  to  be 
falsely  altered  or  spurious,  shall  be  punished 
by  a  fine  of  not  exceeding  $5000  or  by  imprison- 
ment not  exceeding  five  years  or  both. 

No  consideration 

P  7.  Other  than  the  usual  salary  or  direct- 
or's fee  paid  to  any  oflficer,  director  or  employee 
of  Federal  Rural  Credits  Company,  a  federal 
debenture  bank  or  a  federal  co-operative  agri- 
cultural association,  and  other  than  a  reason- 
able fee  paid  by  such  institution  to  any  oflficer, 
director,  attorney  or  employee  for  services  ac- 
tually rendered,  no  oflficer,  director,  attorney  or 
employee  of  any  institution  organized  under 
this  Act,  or  employee  of  the  Company  or  fed- 
eral debenture  bank  or  federal  co-operative 
agricultural  association  organized  under  this 
Act  shall  be  a  beneficiary  of  or  receive,  directly 
or  indirectly,  any  fee,  commission,  gift  or  other 
consideration  for  or  in  connection  with  any  trans- 
action or  business  of  such  association  or  bank. 
No  such  institution  organized  under  this  Act 
shall   charge    or    receive    any    fee,    commission, 

216  s 

1 


FOR  RURAL  CREDITS 

bonus,  gift  or  other  consideration  not  herein 
specifically  authorized.  No  examiner,  public 
or  private,  shall  disclose  the  names  of  borrow- 
ers to  other  than  the  proper  officers  of  Federal 
Rural  Credits  Company  or  federal  debenture 
bank  or  federal  co-operative  agricultural  cor- 
poration without  first  having  obtained  express 
permission  in  writing  from  the  chairman  of 
Federal  Rural  Credits  Board  or  from  the  board 
of  directors  of  such  company,  bank  or  associa- 
tion, except  when  ordered  to  do  so  by  a  court 
of  competent  jurisdiction  or  by  direction  of  the 
Congress  of  the  United  States  or  of  either  House 
thereof  or  any  committee  of  Congress  or  of 
either  House  duly  authorized.  Any  person  vio- 
lating any  provision  of  this  paragraph  shall  be 
punished  by  a  fine  of  not  exceeding  $5000  or  by 
imprisonment  not  exceeding  one  year  or  both. 

Embezzlement 

P  8.  Any  person  connected  in  any  capacity 
with  the  Federal  Rural  Credits  Company  or 
any  federal  debenture  bank  or  federal  co-op- 
erative agricultural  association,  who  embez- 
zles, abstracts  or  willfully  misapplies  any 
moneys,  funds  or  credits  thereof,  or  who  with- 
out authority  from  the  directors  draws  any  or- 

217 


THE  BILL  PROPOSED 

der,  assigns  any  note,  bond,  debenture,  draft, 
mortgage,  lien,  judgment  or  decree  thereof,  or 
who  makes  any  false  entry  in  any  book,  report 
or  statement  of  such  institution  with  intent  in 
either  case  to  defraud  it  or  any  other  company, 
body  politic  or  corporate,  or  any  individual  per- 
son, or  to  deceive  any  officer  of  such  institution 
or  any  agent  appointed  to  examine  into  the  af- 
fairs thereof,  and  every  person  who  with  like 
intent  aids  or  abets  any  officer,  clerk  or  agent  in 
violation  of  this  Section,  shall  be  punished  by 
a  fine  of  not  exceeding  $5000  or  by  imprison- 
ment not  exceeding  five  years  or  both. 

Fraud 

P  9.  Any  person  who  shall  deceive,  de- 
fraud or  impose  upon,  or  who  shall  attempt  to 
deceive,  defraud  or  impose  upon  any  person, 
firm  or  corporation,  by  making  any  false  pre- 
tense of  representation  regarding  the  charac- 
ter, issue,  security  or  terms  of  any  credit  instru- 
ment issued  under  the  terms  of  this  Act;  or  by 
falsely  pretending  or  representing  that  any  de- 
benture or  coupon  issued  under  the  terms  of 
this  Act  is  anything  other  than  or  different  from 
what  it  purports  to  be  on  the  face  thereof,  shall 

218 


FOR  RURAL  CREDITS 

be  fined  not  exceeding  $500  or  imprisoned  not 
exceeding  one  year  or  both. 

Secret   service 

P  10.  The  Secretary  of  the  Treasury  here- 
by is  authorized  to  direct  and  use  the  secret  ser- 
vice division  of  the  Treasury  Department  to  de- 
tect, arrest  and  deliver  into  custody  of  the 
United  States  Marshall  having  jurisdiction  any 
person  or  persons  violating  any  of  the  provi- 
sions of  this  Section. 

MISCELLANEOUS 

Women 

P  1.  Section  27.  That  nothing  in  this  act 
shall  be  held  to  debar  women  from  any  office  or 
position  named  herein. 

Preference    to    veterans 

P  2.  That  no  charge  shall  be  made  for  services 
under  this  act  to  veterans  other  than  registration 
and  similar  fees  required  by  law,  under  rules  and 
regulations  to  be  prescribed  by  federal  farm  loan 
board,  and  federal  rural  credits  board  in  their 
respective  spheres. 

AMENDMENT  TO  FEDERAL  FARM 

LOAN  ACT 

Section  28.        That  the  Federal  Farm  Loan  Act 

approved  17  July,  1916,  is  hereby  amended  by 

219 


THE  BILL  PROPOSED 

adding  to  paragraph  6  of  section  12:  "Provided 
that  such  loans  may  be  made  to  any  veteran  (as 
defined  in  the  Rural  Credits  Act  of  1922)  who 
lives  upon  and  cultivates  the  owned  farm,  pro- 
vided its  extent  is  not  less  than  one  acre ;  and 
provided  further,  that  none  of  the  charges  for 
making  loans  under  the  Farm  Loan  Act  shall  be 
collected  from  such  veteran,  other  than  registra- 
tion or  similar  fees  required  by  law." 

LIMITATION  OF  COURT  DECISIONS 

Section  29.  That  if  any  clause,  sentence, 
paragraph  or  part  of  this  Act  shall  for  any  rea- 
son be  adjudged  by  any  court  of  competent  jur- 
isdiction to  be  invalid,  such  judgment  shall  not 
affect,  impair  or  invalidate  the  remainder  of 
this  Act,  but  shall  be  confined  in  its  operation 
to  the  clause,  sentence,  paragraph  or  part 
thereof  directly  involved  in  the  controversy  in 
which  such  judgment  shall  have  been  rendered. 

REPEALING  CLAUSE 

Section  30.  That  all  Acts  or  parts  of  Acts  in- 
consistent with  this  Act  are  hereby  repealed 
and  this  Act  shall  take  effect  upon  its  passage. 
The  right  to  amend,  alter  or  repeal  this  Act  is 
hereby  expressly  reserved. 

220 


FOR  RURAL  CREDITS 

TITLE  II 
FEDERAL  CO-OPERATIVE  BANKS 

Title 

Section  1.  This  title  may  be  cited  as  "Federal 
Co-operative  Bank  Act  of  1922." 

How  formed 

P  1.  Section  2.  Five  or  more  natural  per- 
sons, residents  in  the  community  in  which  it  is  to 
be  established,  may  form  a  banking  institution  to 
be  conducted  upon  the  co-operative  principle,  the 
title  of  which  shall  include  the  words,  "Federal 
Co-operative  Bank,"  which  words  may  be  em- 
ployed only  in  the  title  of  institutions  chartered 
pursuant  to  this  title  under  penalty  of  $10  for 
each  day  during  which  such  violation  is  com- 
mitted or  repeated. 

$5  shares 

P  2.  The  capital  stock  of  any  federal  co-opera- 
tive bank  shall  be  in  shares  of  a  par  value  of  five 
dollars. 

Liability 

P  3.  Each  share  holder  shall  be  liable  for  the 
debts  of  the  bank  to  total  the  amount  of  par  value 
of  its  shares  standing  in  his  name. 

One  vote 

P  6.  Shares  may  be  owned  only  by  natural 
persons,  each  of  whom  may  hold  shares  only  in 

221 


THE  BILL  PROPOSED 

one  such  bank,  and  have  but  one  vote  irrespective 
of  the  number  of  shares  held. 

Minimum    capital 

Section  3.  No    federal    co-operative    bank 

shall  be  organized  with  a  less  capital  than  $5000 
in  any  place  the  population  of  which  by  the  last 
federal  census  does  not  exceed  1500  inhabitants; 
nor  with  a  less  capital  than  $10,000  in  any  place 
the  population  of  which  does  not  exceed  6000 ;  nor 
with  a  less  capital  than  $15,000  in  places  having 
in  excess  of  6000  inhabitants. 

Business 

P  1.  Section  4.  Each  Federal  co-operative 
bank  shall  establish  a  commercial  department  in 
which  it  may  receive  deposits,  make  loans  and 
transact  a  general  banking  business  in  the  same 
manner  and  under  the  same  laws,  rules  and  regu- 
lations as  any  national  bank ;  except  that  its  suit- 
ably secured  agricultural  loans  and  or  live  stock 
paper  may  be  for  not  longer  than  one  year,  with 
such  safely  restricted  renewal  privileges  as  may 
be  approved  by  the  Comptroller  of  the  Currency. 

Joins   reserve    bank 

P  2.  Any  federal  co-operative  bank  shall  ap- 
ply for  membership  in  the  Federal  Reserve  Bank 
for  its  district  when  it  shall  have  complied  with 
the  provisions  of  Section  3  of  Title  III  of  this 

222 


FOR  RURAL  CREDITS 

Act  and  of  all  other  provisions  of  the  Federal 
Reserve  Act  and  of  acts  amendatory  thereto 
pertaining  to  said  application. 

Joins   debenture  bank 

P  3.  Each  federal  co-operative  bank  shall  be- 
come a  member  of  the  Federal  debenture  bank  for 
its  state  by  investing  in  the  shares  thereof  not  less 
than  ten  per  cent  of  the  paid  up  cash  capital  of 
such  Federal  Co-operative  bank. 

Real    estate   department 

P  1.  Section  5.  A  real  estate  department  may 
be  created  in  any  Federal  co-operative  bank  or  in 
any  national  bank.  The  assets  and  liabilities  of 
such  real  estate  department  shall  be  segregated 
from  the  assets  and  liabilities  of  any  and  all  other 
departments  of  the  bank. 

Limit  of  capital 

P  2.  Not  less  than  five  per  cent  nor  more  than 
ten  per  cent  of  the  capital  and  surplus  of  the  bank 
may  be  segregated  to  and  employed  by  its  real  es- 
tate department. 

Investments  of 

P  3.  Any  of  the  funds  of  the  real  estate  de- 
partment may  be  invested  in  (a)  bonds  or  other 
credit  instruments  of  the  United  States,  or  in 
Federal  farm  loan  bonds  or  Federal  debentures; 
(b)  in  first  mortgages  on  real  estate  located  with- 

223 


THE  BILL  PROPOSED 

in  30  miles  of  such  bank  and  owned  by  any  incor- 
porated co-operative  association  and  used  by  it 
for  agricultural  purposes  or  agricultural  busi- 
ness, or  (c)  in  mortgage  on  a  farm  located  within 
30  miles  of  such  bank  which  may  be  a  first 
mortgage  or  second  to  a  first  mortgage  there- 
on owned  by  the  Federal  land  bank.  No  such 
mortgage  shall  be  for  a  longer  period  than  five 
years  and  shall  comply  with  the  provisions  of  this 
Act. 

Rediscounts 

P  4.  Such  bank  may  rediscount  its  paper  with 
the  Federal  debenture  bank  in  accordance  with 
the  provision  of  this  Act. 

When   reserved 

P  5.  When  any  Federal  Co-operative  Bank 
meets  the  provisions  of  paragraph  2  of  Section 
3  of  this  Act  it  shall  apply  for  membership  in 
the  Federal  Reserve  banks  for  its  district. 

Supervised   by  comptroller 

Section  6.  The  Comptroller  of  the  Currency, 
with  the  sanction  of  the  Secretary  of  the  Treas- 
ury, shall  have  supervision  over  all  Federal  co- 
operative banks  the  same  as  he  has  supervision 
over  all  institutions  incorporated  under  the  Na- 
tional Bank  Act  of  June  20,  1874,  and  of  all  Acts 
amendatory  thereof. 

224 


FOR  RURAL  CREDITS 

TITLE  III. 

AMENDMENTS     TO     FEDERAL     RESERVE 

ACT 

Title 

Section  1.  This  title  may  be  cited  as  "Federal 
Reserve  Amendments  of  1922." 

Amends   Section    13 

P  1.  Section  2.  That  section  13  of  the  Fed- 
eral Reserve  Act,  as  amended,  be  further  amend- 
ed by  striking  out  the  proviso  at  the  end  of  the 
second  paragraph  of  said  section,  so  that  said  par- 
agraph shall  read  as  follows : 

Discounts 

P  2.  "Upon  the  indorsement  of  any  of  its 
member  banks,  or  of  Federal  Rural  Credits  Com- 
pany or  any  federal  debenture  bank,  which  shall 
be  deemed  a  waiver  of  demand,  notice  and  pro- 
test by  such  bank  as  to  its  own  indorsement  ex- 
clusively, any  Federal  reserve  bank  may  discount 
notes,  drafts,  and  bills  of  exchange  arising  out  of 
actual  commercial  transactions;  that  is,  notes, 
drafts,  and  bills  of  exchange  issued  or  drawn  for 
agricultural,  industrial,  or  commercial  purposes, 
or  the  proceeds  of  which  have  been  used,  or  are  to 
be  used,  for  such  purposes,  the  Federal  Reserve 
Board  to  have  the  right  to  determine  or  define  the 

225 


THE  BILL  PROPOSED 

character  of  the  paper  thus  eligible  for  discount, 
within  the  meaning  of  this  Act.  Nothing  in  this 
Act  contained  shall  be  construed  to  prohibit  such 
notes,  drafts,  and  bills  of  exchange  secured  by 
staple  agricultural  products,  or  other  goods, 
wares,  or  merchandise  from  being  eligible  for 
such  discount,  but  such  definition  shall  not  include 
notes,  drafts,  or  bills,  covering  merely  invest- 
ments or  issued  or  drawn  for  the  purpose  of  car- 
rying or  trading  in  stocks,  bonds,  or  other  invest- 
ment securities,  except  bonds  and  notes  of  the 
Government  of  the  United  States.  Notes,  drafts, 
or  bills  admitted  to  discount  under  the  terms  of 
this  paragraph  must  have  a  maturity  at  the  time 
of  discount  of  not  more  than  ninety  days,  exclu- 
sive of  days  of  grace." 

New   section 

P  1.  Section  2.  That  the  Federal  Reserve 
Act,  as  amended,  be  further  amended  by  adding 
at  the  end  of  section  13  a  new  section,  to  be  num- 
bered section  13a  and  to  read  as  follows : 

"DISCOUNT  OF  AGRICULTURAL  AND  LIVE- 
STOCK PAPER 

Rediscounting    commodity    paper 

P  2.  "Section  13a.  Upon  the  indorsement  of 
any  of  its   member  banks,  or    of  Federal   Rural 

226 


FOR  RURAL  CREDITS 

Credits  Company  or  any  federal  debenture  bank 
which  shall  be  deemed  a  waiver  of  demand,  notice 
and  protest  by  such  bank  as  to  its  own  indorse- 
ment exclusively,  any  Federal  reserve  bank  may 
discount  notes,  drafts,  and  bills  of  exchange  is- 
sued or  drawn  for  an  agricultural  purpose,  or 
based  upon  live  stock,  and  having  a  maturity,  at 
the  time  of  discount,  exclusive  of  days  of  grace, 
not  exceeding  six  months:  Provided,  however 
That  (a)  notes,  drafts,  or  bills  of  exchange  se- 
cured by  warehouse  receipts  or  other  such  nego- 
tiable documents,  conveying  or  securing  title  to 
readily  marketable,  non-perishable  agricultural 
products,  may  be  discounted  with  a  maturity,  at 
the  time  of  discount,  not  exceeding  one  year,  un- 
der regulations  to  be  prescribed  by  the  Federal 
Reserve  Board.  Such  regulations  shall  be  designed 
to  insure  that  such  notes,  drafts,  or  bills  of  ex- 
change were  drawn  or  issued  as  a  part  of  a  pro- 
gram of  orderly  marketing  of  such  agricultural 
products  and  not  for  speculative  holding  of  such 
products. 

Live  stock  and  agricultural  paper 

P  3.  "(b)  Notes,  drafts,  or  bills  of  exchange 
secured  by  chattel  mortgage  upon  live  stock  may 
be  discounted  with  a  maturity  not  exceeding  two 

227 


THE  BILL  PROPOSED 

years  provided  such  live  stock  is  at  the  time  of 
discount  being  prepared  for  market  under  such 
conditions  that  it  will  be  ready  for  market  on  or 
before  the  date  of  maturity  of  such  note,  draft  or 
bill.  Notes  issued  by  incorporated  co-operative 
agricultural  associations,  or  drafts  or  bills  ac- 
cepted by  any  such  association,  shall  be  deemed  to 
have  been  issued  or  drawn  for  an  agricultural 
purpose,  within  the  meaning  of  this  section,  if  the 
proceeds  thereof  have  been  or  will  be  advanced 
by  such  association  to  any  member  thereof  for  an 
agricultural  purpose,  or  if  such  proceeds  have 
been  or  will  be  used  by  such  association  for  its 
agricultural  business,  or  to  meet  expenditures 
incurred  by  the  association  in  connection  with 
the  grading,  processing,  packing,  preparation 
for  market,  or  marketing  of  any  agricultural 
product  or  live  stock  handled  by  such  associa- 
tion for  any  of  its  members. 

Debentures  discounted 

P  4.  "(c)  Federal  debentures  issued  by  any 
Federal  debenture  bank  may  be  discounted  by 
any  Federal  Reserve  Bank  when  having  a  ma- 
turity, at  the  time  of  discount,  not  exceeding 
one  year.  Obligations  of  Federal  Rural  Credits 
company  issued  pursuant  to  section  7  of  the 
Rural  Credits  Act  of  1922,  may  be  discounted 

228 


FOR  RURAL  CREDITS 


by  any  Federal  Reserve  Bank,  either  direct  for 
said  Company  or  for  any  Federal  debenture 
bank  or  any  member  bank. 

Limits  of 

P  5.  "The  Federal  Reserve  Board  may,  by  reg- 
ulation, limit  to  a  percentage  of  the  assets  of  a 
Federal  Reserve  bank  the  amount  of  notes,  drafts, 
or  bills,  having  a  maturity  in  excess  of  three 
months,  but  not  exceeding  six  months,  exclusive 
of  days  of  grace,  which  may  be  discounted  by  such 
bank,  and  the  amount  of  notes,  drafts,  or  bills 
having  a  maturity  in  excess  of  six  months,  but 
not  exceeding  two  years,  which  may  be  dis- 
counted by  such  bank." 

P  1.  Section  3.  That  the  ninth  paragraph  of 
section  9  of  the  Federal  Reserve  Act  be  amended 
to  read  as  follows: 

Little  banks  in  reserve 

P  2.  "No  applying  bank  shall  be  admitted  to 
membership  in  a  Federal  reserve  bank  unless  it 
possesses  a  paid-up,  unimpaired  capital  sufRciefit 
to  entitle  it  to  become  a  national  banking  associa- 
tion in  the  place  where  it  is  situated  under  the 
provisions  of  the  national  bank  Act:  Provided, 
however.  That  an  applying  bank  organized  in  a 
place  the  population  of  which  does  not  exceed  six 
thousand  inhabitants  may,  in  the  discretion  of  the 

229 


THE  BILL  PROPOSED 

Federal  Reserve  Board,  be  admitted  to  member- 
ship, if  it  possesses  a  paid-up,  unimpaired  capital 
of  at  least  $15,000,  and  if  the  application  is  ac- 
companied by  adequate  undertakings  of  such  bank 
and  of  its  principal  stockholders  that  the  capital 
of  such  bank  will  within  three  years  be  increased 
to  $20,000:  And  provided  further,  That  an  ap- 
plying bank,  organized  in  a  place  the  population 
of  which  does  not  exceed  three  thousand  inhabi- 
tants, may,  in  the  discretion  of  the  Federal  Re- 
serve Board,  be  admitted  to  membership  if  it 
possesses  a  paid-up  unimpaired  capital  of  at  least 
$10,000,  and  if  it  is  accompanied  by  adequate 
undertakings  of  such  bank  and  of  its  principal 
stockholders  that  such  capital  will  within  three 
years  be  increased  to  $15,000.  If  any  such 
undertakings  have  not  been  fulfilled  within  three 
years  the  Federal  Reserve  Board  may  require  it  to 
withdraw  forthwith  from  membership  in  the  Fed- 
eral reserve  system." 

Depositories 

Section  4.  That  the  Federal  Reserve  Banks 
are  hereby  authorized  to  act  as  depositaries  of  and 
as  fiscal  agents  for  Federal  Rural  Credits  Com- 
pany or  any  Federal  Debenture  Bank,  and  subject 
to  the  maturity  limitations  of  the  Federal  Reserve 
Act  as  hereby  amended  and  to  regulations  of  the 

230 


FOR  RURAL  CREDITS 

Federal  Reserve  Board,  to  discount  the  direct  ob- 
ligations of  member  banks  of  the  Federal  Reserve 
System  secured  by  notes  of  Federal  Rural  Credits 
Company  or  by  Federal  debentures,  and  to  redis- 
count for  member  bank  notes,  drafts  or  other  ne- 
gotiable instruments  secured  by  notes  of  Federal 
Rural  Credits  Company  or  Federal  debentures 
and  indorsed  by  member  banks. 
P  1.  Section  5.  That  Section  11  of  the  Fed- 
eral Reserve  Act  is  amended  by  adding  thereto  a 
new  paragraph,  to  read  as  follows : 

Rural  credits  discounts 

P  2.  "The  Federal  Reserve  Board  shall  be  au- 
thorized to  permit  or  require  Federal  Reserve 
banks  to  rediscount  paper  held  by  the  Federal 
Rural  Credit  Company  or  by  any  Federal  De- 
benture bank  which  conforms  to  the  maturity 
and  other  requirements  of  eligible  paper,  in- 
cluding obligations  of  Federal  Rural  Credits 
Company  issued  pursuant  to  Section  7  of  the 
Rural  Credits  Act  of  1922." 
P  3.  That  Section  5202,  Revised  Statutes,  as 
amended,  is  hereby  further  amended  by  adding 
thereto  a  new  paragraph  to  read  as  follows :  "8. 
Liabilities  incurred  under  the  provisions  of  the 
Rural  Credits  Act  of  1922." 

231 


INDEX 

To  first  part  of  book,  pages  1  to  144 

Bill,    the    proposed    • 146-232 

Company,  Federal  Rural  Credits   (see  federal) 

Co-operative   associations,  see  chap   6    qa 

Backing-    doubled     i »0 

Capital  required    ^^ 

Conducted    for     ^^ 

How  organized    ^* 

Local  Co-op   ^J 

Local  must  report  annually 9  < 

No  charge  to  members  for  financial 

accommodation    95 

No  limitation 96 

Powers    of    ^^ 

Share,  par  value  of 92 

Success   of    11 

Voluntary  service    96 

Federal  Co-operative  Banks,  see  chap  8 .  .  .  117 

Co-operative  bank  a  member  of  debenture 

bank     120 

Credits  unions 125 

Educational  value  in  rural  districts 118 

How  it  does  business 119 

Labor  unions   126 

Little  local  banks  on  co-operative  principle  .  .  .  117 

"Other  People's  Money"    127 

Real   estate   department    121 

Savings  department    122 

Small   loans    123 

Towns  and  cities  may  offer  limited  field 124 

Federal  Debenture  banks,  see  chap  5    65 

Advantage  to  state   70,80 

Amendment    81 

Each  state  owes  a  duty   66 

Farm  mortgages   83 

Guarantee  of  principal  and  interest 73 

Investment  for  trust  funds    76 

Joint  and  several  liability,  no    72,86 

Least  any  state  can  do   66 

Limit  to   debentures   issued    78 

Margin  required    77 

Matching  federal  by  state  money 67 

Members  of  debenture  bank 71 

Objection  may  be  made 79 

One  for  each  state    52,69 

Powers     77 

Real  estate  obligations    82 


232 


INDEX 

State  rights    Vi  74  7^^ 

Washington    eliminated    /  '  '  '  „ 1  9q 

Federal    Reserve    Amendments,    see   chap    9    j^» 

Admittance   to   reserve    •  •  • ■'■'*•'• 

Broader  provisions  for  discount  of  agricul- 

tural  and  livestock  paper l^b 

Comparison  of  old  and  new  plan 14^ 

Co-operative  enterprises    ^^* 

Co-operative  idea    |^^ 

Discount   privilege    i^^ 

Failure    of    bank     ^^^ 

First  amendment    1^^ 

Longer   terms   proposed    |^ ' 

Member  and  non-member  banks l-JO 

Member  banks  to  discount  their  direct 

obligations    141 

Membership   in   federal   reserve — table    143 

Non-members  should  be  forced  into  federal 

reserve     131 

Opposition  to  extension  of  discount  privilege   .  138 

Usefulness  of  federal  reserve  system 129 

Value  of  federal  reserve 132 

Federal  Rural  Credits  Company,  see  chap  4 43,79 

Agricultural  credits  act 57 

Capital,  $250,000 44 

Basis    of    45 

Exceptions  for  various  states    51 

Initial    to    Debenture    bank    45 

Provided  by  central  company 61 

Reason    for    46 

Return  of  initial 47 

Table  of  all  states   48 

Duties  of  the  company   58 

Organization  of  system    60 

Permanent  system  essential   57 

Profits  all  to  federal  treasury   45 

Revenues  from    44 

Successor  to  War  Finance  Corporation 43 

Supervisors  of  the  system 43 

Surplus    44 

Abnormal     59 

Taxes:      

Injustice  to  east    50 

Internal  revenue  tax  paid  by  states — 

map    64 

Revenue    taxes    50 

Taxes  paid  by  states — tables 48 

233 


INDEX 

War   Finance    Corporation    39,43 

Agricultural  and  live  stock  purposes  • .  62 

Financing   exports 62 

Loans  to  Co-operative  marketing 

associations     55,57 

Revenue  producing  states  discriminated 

against     53 

To    be    disbanded 39 

Work  done  by 54 

Index  to  the  proposed  bill   146-232 

Mandate,  the 

Miscellaneous  Features,  see  chap  9    99 

Bankers  might  object   100 

Building    loan    associations    , 104 

Fake  competitors    106 

Division  of  earnings 102 

Franchise   tax    104 

Investment  for  saving  and  other  funds 99 

Livestock  loan  companies 112 

No  interference  or  complication  with 
federal  reserve,  rural  credits  or 

farm  loan  systems    37,116 

Precautions  to  insure  security  of 

cattle    paper     113 

Rediscount  of  livestock  paper 114 

Member    capital    lOS 

Money  kept  at  home   102 

Result  of  the  plan   101 

Taxation  of  securities    109 

Difference  of  conditions 110 

General   welfare    Ill 

Personal  security   Ill 

Veterans    106 

Women's  ability    108 

Plan,    The     

Principles  of  Rural  Credits,  see  chap  2 21 

Attractiveness  to  investors 34 

Base  of  plan    33 

Good  management   29 

Borrowers  must  have  some  capital 30 

Co-operation   required    23 

Advantages    of    25,28 

Co-operative  association   31 

Meetings  of  locals 33 

Mutual  benflts 32 

Other  business,  benefits  to    33 

Objections  made  to  farmers'  obligations 21 

234 


INDEX 

Objections  overcome ' 22 

Penalty  section    ^4 

Privileges  by  joining  debenture  bank 32 

Rural  credits  not  for  those  ignorant  of 

agriculture    29 

Second   mortgage    30 

Problem,   The,   see   chap   1    15 

Agricultural    inquiry    18 

Division  of  finance  : 

Federal  farm  loan  system 15 

Federal  reserve  system    15 

Rural  credits   15 

Great   deflation    18 

Orderly  marketing  of  products 17,31 

Purpose  of  Rural  Credits  Bill 19 

Short   term   mortgages    16 

For  co-operative  associations    17 

For  experienced   farmers    16 

Vision,  The   10 

Why  Federal  Rural  Credits  Board,  see  chap  3    .  .  .  .  36 

Avoids  new  appropriation  by  Congress 39 

Broad   powers    3  9 

Consists  of    38 

Different  to  Federal  Reserve  board   37 

Federal    debentures    41 

Increase  and  decrease  of  rural  credits 36 

No  interference  with  Federal  Reserve  of  Fed- 
eral Farm  Loan  system 37 

Other   duties    41 

Rates  of  interest  and  discount 40 

Separate  and  distinct  bureau 38 

Takes  over  War  Finance  Corporation    ...'...  39 

INDEX 

To  the  Proposed  Bill 

Abnormal  surplus  165  Amendment  to  Federal  Farm 
Action  by  state  173  Loan  Act  219 
Advances,  domestic  166  Amendments,  Section  13  225 
Advances,  foreign  167  Amendments  to  Federal  Re- 
Advances  to  bank  167  serve  Act  225 
Agencies  164  Application  171 
Agricultural  and  livestock  paper  227       Application   of   payments  197 

Discount  of  226       Applications   for   Federal    De- 

Agricultural   business                       147               bentures  192 

Agricultural  loans                             147       Applied  to  surplus  200 

Agricultural  purposes                       147       Appointed,  how  161 

235 


INDIiX 


Appointment    and    dissolution 

Charter,    forfeiting 

209 

of    receivers 

210 

Classes    of 

196 

Association,    co-operative 

149 

Clause,    repealing 

220 

Association,  co-operative 

176 

Collateral 

199 

Associations,     Federal     Rural 

Commission,    no 

187 

Credits    System 

205 

Commodity  paper 

148 

At  least  $1,000   capitel 

208 

Commodity   paper,    rediscount- 

ing 

226 

Bank,  advances  to 

167 

Company,   Certified  by   F   R   C 

191 

Bank,   debenture — joins 

223 

Company,  Federal  Rural  Credits  158 

Bank,    debenture — Member 

207 

Powers  of 

161 

Bank,  Federal  land 

185 

Company,  others  paid  by 

154 

Bank,  reserve — joins 

222 

Company,   represents 

181 

Banks   as   members 

176 

Compensation 

175 

Banks,    co-operative 

176 

Comptroller,  supervised  by 

224 

Banks,    debenture 

156 

Consideration,    no 

216 

Banks,   debenture — capital    in 

162 

Coupons 

190 

Banks,  Federal  co-operative 

221 

Co-operative    association 

149 

Banks,   Federal   debenture 

169 

Co-operative  association 

176 

Membership   in 

176 

Co-operative  banks 

176 

Banks  in  reserve,  little 

229 

Co-operative  banks,  Federal 

221 

Board   decides 

194 

Co-operative   principle 

150 

Board,  Federal   Rural   Credits 

150 

Corporation,    liquidates    War 

Powers  of 

156 

Finance 

159 

Bodies,  other 

155 

Counterfeiting 

215 

Bonds,  buys 

163 

Court  decisions,  limitation  of 

220 

Bonds,  U.   S. — deals  in 

182 

Credits 

197 

Borrow,  may 

184 

Credits,  export 

186 

Bound   by    its   oflScers 

191 

Custodian 

163 

Business 

222 

Custodian  chairman 

180 

Business,    agricultural 

147 

Custodian,  federal 

181 

Buying  paper 

163 

Custodian  verifies. 

193 

Buys    bonds 

163 

By-laws 

162 

Deal    in    paper 

207 

By-laws 

172 

Deals  in  U  S  bonds 

182 

Debenture   bank,    joins 

223 

Capital 

158 

Debenture    bank,    member 

207 

Capital  at  least  $1,000 

208 

Debenture    banks 

156 

Capital    in    debenture    banks 

162 

Debenture   banks,    capital    in 

162 

Capital,    initial — retire 

179 

Debenture  banks.   Federal 

169 

Capital,    Limit    of 

223 

Membership  in 

176 

Capital,    member 

177 

Powers   of 

181 

Capital,  minimum 

222 

Restrictions    on 

186 

Capital    reduced 

160 

Debenture,    issue    of 

181 

Capital,    retire,    initial — fran- 

Debentures 

156 

chise  tax 

202 

Debentures 

188 

Certificate 

206 

Debentures    discounted 

228 

Certificates,  sell 

164 

Debentures,  margin  for 

192 

Certified  by  F   R   C   Company 

191 

Debentures,   printing 

190 

Chairman,   custodian 

180 

Debentures — surety 

157 

Charges 

184 

Debentures    tenfold 

186 

Charter 

172 

Decreases 

178 

Charter 

206 

Definitions 

146 

236 


INDEX 


Delivery  194 

Denominations  189 

Department,    real   estate  223 

Deposit,   may  184 

Depositories  230 

Depository,   U    S  164 

Depository,   U   S  183 

Deposits,    limited  185 

Deposits    received  184 

Director,    federal    retire  179 

Directors,    officers  172 

Directors,    permanent  174 

Directors,   temporary  170 

Discount  181 
Discount   of   agricultural   and 

livestock    paper  226 

Discounted,    debentures  228 

Discounts  163 

Discounts  225 

Discounts,   reserve  164 

Discounts,   Rural   Credits  231 

Disinterested  153 
Dissolution  of  appointment  of 

receivers  210 

Dividend,  extra  201 

Dividend,    six  per    cent  200 

Division  of  earnings  200 

Domestic   advances  166 

Earnings,  division  of  200 

Embezzlement  217 

Entity,    legal  207 

Examinations  155 

Examinations  157 

Examinations  209 

Examiners  209 

Except  on  its  shares  202 

Exemption  202 

Exemption,   tax  202 

Exemptions,    other  203 

Export    credits  165 

Export  credits  185 

Extra  dividend  201 

Failures  210 
False  statements  214 
Federal  Co-operative  Banks  221 
Federal  custodian  181 
Federal  debenture  banks  169 
Powers  of  181 
Federal  debentures  188 
Federal  debentures — applica- 
tions for  192 
Federal    director,    retire  179 


Federal  land  bank  185 
Federal  Farm  Loan  Act, 

amendment  to  219 
Federal    Reserve    Act, 

amendments  to  225 
Federal   Rural   Credits   Board  150 
Powers    of  156 
Federal  Rural  Credits  Company  158 
Powers    of  161 
Federal    Rural    Credits    Com- 
pany,  certified  by  191 
Federal   Rural  Credits  system 

associations  205 

First   lien  189 

First    meeting  152 

First    mortgages  186 

Fix    rates  166 

Foreign    advances  167 

Forfeiting    charter  209 

Form   of   federal  debenture  189 

Formed    how  205 

Formed  how  221 
Franchise    tax — retire    initial 

capital  202 

Fraud  218 

Fund,   trust  200 

Graft,  no  212 

Gratuities,  no  213 

Guarantee  164 

Guarantee  194 
Guarantee    of    principal    and 

interest  192 

How  appointed  161 

How  formed  205 

How    formed  221 

How    payable  168 

How    payable  198 

Impairment,  no  180 
Incidental  powers  173 
Increases  178 
Initial  capital,  retire  179 
Initial  capital,  retire — fran- 
chise tax  202 
Initial  shares  170 
Interest  and  principal,  guar- 
antee of  192 
Interest  rate  188 
Investment  181 
Investments  of  223 
Issue  of  debentures  181 
Issue  of  debentures  194 


237 


INDEX 


Joins  debenture  bank  223 
Joins  reserve  bank  222 
Land  bank,  federal  185 
Legal  entity  207 
Length  of  loans  187 
LiabUity  221 
Liability,  no  202 
Liability  of  the  U.  S.  202 
Liability,  shareholders  208 
Liability,  specific  191 
Liable,  not  jointly  176 
Lien,  first  189 
Limit  of  capital  223 
Limit  to  rediscounts  187 
Limitation  of  Court  decisions  220 
Limited  deposits  185 
Limits  of  229 
Liquidates  War  Finance  Cor- 
poration 159 
Liquidation  211 
Little  banks  in  reserve  229 
Livestock  and  agricultural  paper  227 
Discount  of  226 
Livestock  paper  147 
Loans,  agricultural  147 
I^oans,  length  of  187 
Loans,  may  make  207 
Loans,  second  mortgage  186 
Make  loans,  may  207 
Margin  for  debentures  192 
May  borrow  184 
May  deposit  184 
May  make  loans  207 
Meeting,  first  152 
Member  146 
Member  capital  177 
Member  debenture  bank  207 
Menibers.  banks  as  176 
Membership  in  debenture  banks  176 
Middleman  unnecessary  213 
Minimum  capital  222 
Miscellaneous  219 
More  security  197 
Mortgage  loans,  second  186 
Mortgages,  first  186 
Name  158 
Named  206 
New  section  226 
No  commission  187 
No  consideration  216 
No  graft  212 
No  gratuities  213 
No   impairment  180 


No  liability  202 

Not  jointly  liable  176 

Obligations,  real  estate  149 

Office,  salary  180 

Officers,  bound  by  its  190 

Officers,   directors  172 

One   in   each  state  169 

One  vote  221 

Organization  205 

Other  bodies  155 

Other  exemptions  203 

Other  powers  158 

Other  real  estate  184 

Others  paid  by  company  154 

Paid  by  company,  others  154 

Paid  by  United   States  154 

Paper,  buying  168 

Paper,  commodity  148 
Paper,    commodity — rediecount- 

ing  226 

Paper,    deal    in  207 

Paper,    livestock  147 
Paper,  livestock  and  agricultural  227 

Paper,  purchases  of  182 

Payable,   how  168 

Payable,  how  198 

Payments,  application  of  197 

Payments  of  199 

Penalties  212 

Permanent  directors  174 

Power,   trustees  200 

Powers  162 

Powers,    incidental  173 
Powers    of    federal    debenture 

banks  181 
Powers  of  Federal  Rural  Credits 

board  156 
Powers  of  Federal  Rural  Credits 

Company  161 
Powers,  other  168 
Powers — privileges  160 
Powers,  temporary  165 
Preference  to  veterans  219 
Principal  and  interest,  guar- 
antee of  192 
Principle,  co-operative  150 
Printing  debentures  190 
Privileges — powers  160 
Provisions  of  188 
Provisions  of  the  federal  de- 
bentures, special  191 
Purchase  of  paper  182 


238 


INDEX 


Purposes,  agricultural 


Qualiflcations 

151 

Qualifications 

175 

Quorum 

155 

Rate,  interest 

188 

Rates,   fix 

156 

Real  estate  department 

22.? 

Real   estate   for   own   use 

183 

Real  estate  oblisrations 

149 

Renl   estate,   other 

184 

Received,    deposits 

184 

Receiver 

211 

Receivers,  dissolution  and  ap- 

pointment  of 

211 

Rediscounting  commodity  paper 

226 

Rediscounts 

224 

Rediscounts,    limit    to 

187 

Rediscounts  with  reserv* 

182 

Reduced,    capital 

IfiO 

ReRulations 

155 

Rejection 

195 

Removals 

167 

Repealing    clause 

220 

Reports 

154 

Represents  company 

181 

Reserve  bank,   joins 

222 

Reserve    discounts 

164 

Reserve,    little    banks    in 

229 

Reserve,    rediscounts    with 

182 

Reserved,   when 

224 

Responsibilities  of 

209 

Restrictions    on    Federal    De- 

benture banks 

186 

Retire    federal   director 

179 

Retire  initial  capital 

179 

Retire    initial    capital — 

franchise   tax 

202 

Rural    credits    board,    federal 

160 

Powers  of 

156 

Rural    credits    company 

158 

Powers   of 

161 

Rural  credits  discounts 

231 

Salaries 

210 

Salary,  office 

180 

Second  mortgage  loans 

186 

Secret  service 

219 

Section    13,    amendments 

225 

Section,    new 

226 

Securities 

183 

Securities 

196 

Security 

168 

Security,  more 

197 

Sell   certificates  16* 

Shareholder's  liability  2081 

Shares  $5  221 

Shares,  except  on  its  202 

Shares,   initial  170 

Six  percent  dividend  200 
Special   provisions  of   Federal 

debentures  191 

Specific    liabilty  191 

State,    action    by  178 

State,  one  in  each  169 

Statements,    false  214 

Substitutions  197 

Successor  159 

Superintendent — terms  152 

Supervised  by  comptroller  224 

Supervision  157 

Supervision  208 

Surety— debentures  157 

Surplus,    abnormal  166 

Surplus,  applied  to  200 

Surplus,    25%  201 

Surplus,   50%  201 

Surrenders  178 

Tax  exemption  202 
Tax,    franchise — retire    initial 

capital  202 

Temporary  directors  170 

Temporary    powers  166 

Tenfold,  debentures  186 

Terms — superintendent  162 

Term   of  189 

Title  170 

Title  221 

Title  226 

Trust  fund  200 

Trustees  power  200 

United  States,  paid  by  164 

Unnecessary,    middlemen  2l3 

U.  S.  bonds,   deals  in  182 

U.    S.   depository  164 

U.  S.  bonds  depository  183 

U.  S.  liability  of  202 

Vacancies  160 

Verifies,  custodian  193 

Veteran  160 

Veterans,  preference  to  219 

Vote,  one  221 
War  Finance  Corporation, 

liquidates  159 

When  reserved  224 

Withdrawal  198 

Women  219 


239 


The  Right  Use  of  Health 

AN  INVOCATION 

Uttered   in   humility   and  penitence,   by  one  who  feels   implicit 

confidence  in  God's  infinite  power,   sublime 

mercy  and  universal  presence 


WHATEVER  powers  be  in  me, 
dedicate  anew  to  larger  serv- 
ice, to  wider  usefulness,  to  nobler 
endeavor. 

INSPIRE  me  with  the  divine  en- 
ergy which  seeks  expression  in 
duty  well  done.  Grant  me  the 
Fight  always  to  see  that  which  I 
should  do,  and  the  will  to  do  it 
aright. 

TEACH  me  to  conserve  my  phys- 
ical, mental  and  spiritual  forces 
so  that  they  may  unite  in  a  Trini- 
ty of  Health.  Enable  me  to  con- 
secrate my  health  to  the  service  of 
God  from  whence  it  comes,  and  to 
do  this  by  better  serving  my  fel- 
low-men. 

LEAD  me  into  the  Infinite  Har- 
mony, the  poise  of  Nature,  "the 
peace  of  God  which  passeth  all  un- 
derstanding." Attune  my  being  to 
receive  Thy  vibrations,  make  of  me 
an  instrument  for  transmitting  Thy 
will. 

HELP  me,  O  God,  to  nourish  my 
Body  in  holiness  and  health — 
to  keep  it  free  from  all  evil  ten- 
dencies   or    unrighteous    actions,    to 


know  its  marvels  and  wisely  to  use 
them,  rather  than  ignorantly  or 
wickedly   to  abuse  its  wonders. 

AND  help  me  yet  more,  O  Lord, 
in  Mind-growth  and  mental 
strength.  Aid  me  to  expand  my 
thinking  powers,  further  develop 
my  reason,  enrich  my  affections  and 
emotions,  increase  my  vigor  of  will, 
guide  my  hopes  and  enthusiasms, 
banish  my  fears  and  worries,  en- 
courage me  to  bear  my  burdens, 
stimulate  my  self-control,  refresh 
my  earnestness  of  purpose,  enlarge 
my   love  for   the  beautiful. 

nPHUS,  with  Thy  ever-present  help, 
-■■  Lord  God  Almighty,  may  my 
Body  and  Mind  always  be  a  fitting 
temple  for  my  Soul — for  Thy  spir- 
it in  me  with  which  in  its  fullness  1 
am  Truth  and  Strength,  Faith  and 
Love,  Health  and  Happiness,  but 
without  which  I  am  merely  human. 

FEED  Thou  my  whole  life — di- 
rect Body,  Mind  and  Soul  to 
co-operate  in  unison  for  efficiency, 
progress,  contentment,  joy,  serv- 
ice,  truth.     Amen. 

— Herbert  Myrick 


240 


AA    001  119  290    3 


I\/IYRICK.    Herbert 


AUTHOR 

Rural    Credits    System 

TITLE 


DATE 
DUE 


BOMKUWtH  ;>    rsAMt 


DATE 
RETURNED 


/ 


/ 


